Westinghouse Air Brake Technologies (NYSE:WAB), or Wabtec, closed the books on 2018, delivering fourth-quarter results that were about as expected. Not only did the company benefit from a rebound in the freight market, but its transit segment also continued to enjoy healthy market conditions. The company expects those twin tailwinds to continue in 2019, providing a further boost to the anticipated benefits of its merger with GE's (NYSE:GE) Transportation unit, which closed this week.

Wabtec's results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Gain (Decline)

Revenue

$1.12 billion

$1.08 million

3.9%

Net income

$34.4 million

$48.9 million

(29.7%)

Earnings per share

$0.36

$0.51

(29.4%)

Data source: Westinghouse Air Brake Technologies Corp.

What happened with Wabtec this quarter? 

Wabtec's dual growth engines drove revenue higher:

  • Sales from Wabtec's transit group increased by about 4% versus the year-ago period to $737 million. Organic sales growth added $30 million to the top line, while acquisitions provided $22 million of incremental income, which combined to more than offset the $27 million negative impact from changes in foreign exchange.
  • Revenue from the freight group rose 5% year over year to $380.9 million. Organic growth added $16 million to freight sales during the quarter, while acquisitions boosted the top line by $6 million, more than offsetting the $5 million negative impact from foreign exchange fluctuations.
  • For the full year, sales totaled $4.4 billion, up 12% from 2017 and slightly ahead of the company's $4.35 billion forecast.
  • While earnings declined roughly 30% year over year, that was mainly due to the added costs of restructuring its operations from previous acquisitions (which tallied $0.35 per share during the fourth quarter) and expenses relating to its GE Transportation merger (totaling $0.17 per share). If we adjust for these and other items, Wabtec's net income would have been $0.97 per share. That's well ahead of the $0.39 per share of adjusted earnings the company tallied in the year-ago period.
  • Full-year adjusted net income, meanwhile, was $3.81 per share, which was slightly below its forecast of $3.85.
A train moving through a forest at sunset.

Image source: Getty Images.

What management had to say 

CEO Raymond Belter commented on the company's results: "We are pleased that we finished the year as we expected and generated very strong cash flow from operations in the fourth quarter. The rebound in the freight cycle continued to drive revenue growth in our freight segment, and we saw strong sales growth in our transit segment."

Thanks to the solid growth of both segments, Wabtec ended last year about as expected as revenue came in a bit above projections, while earnings came in slightly below guidance. One of the highlights for the quarter was that the company generated $277 million in cash from operations, which was its highest level of the year. 

Looking forward 

Belter also stated that: "Heading into 2019, we expect to see revenue growth in both segments, as we continue to focus on driving margin expansion and cash generation. With the completion of our merger with GE Transportation, we are confident the company will drive improved growth and performance in 2019 and beyond by leveraging our more-diversified business mix, global scale, and highly innovative technologies."

The addition of GE Transportation will significantly increase Wabtec's sales in 2019, with the company forecasting that revenue will be around $8.4 billion. Meanwhile, the company anticipates that after adjusting for one-time expenses relating to the GE Transportation merger, earnings will range between $4 and $4.20 per share, which implies about 7% growth at the midpoint from 2018.