While lower commodity prices are causing sluggish economic conditions in the rail industry, those conditions aren't having much impact on Wabtec's (NYSE:WAB) financial results yet. That was pretty clear in the company's third-quarter report, which it issued before the market opened on Thursday. Its results were right on target, and would have been even higher if it wasn't for foreign currency headwinds and an acquisition-related charge.

Wabtec results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Revenue

$809.5 million

$797.3 million

2%

Income from Operations

$152.1 million

$136.0 million

12%

EPS

$1.02

$0.93

10%

Source: Wabtec Corporation.

What happened with Wabtec this quarter?
Wabtec continues to be driven by strong growth in its Freight Group.

  • Sales in the aforementioned Freight Group rose 12% over the year-ago quarter, to $507.2 million.
  • That helped offset weakness in the company's Transit Group, where sales slipped 12% year over year, to $302.4 million.
  • The company has a plan to boost the slipping sales in its Transit Group by acquiring Faiveley Transport, which it's making progress toward closing.
  • That acquisition chipped $0.02 per share off of the company's earnings due to acquisition-related charges.
  • Currencies also chipped away at earnings, reducing diluted earnings by $0.05 per share versus the year-ago quarter. Further, currencies took a $39 million chunk out of revenue compared to the third quarter of last year.

What management had to say
Wabtec CEO Raymond Belter praised the performance of the company's Freight Group in the earnings release, noting that the company's solid quarter was "driven by the performance" of that segment. Because of this strength, Belter said that the company "expect[s] to finish the year with a good fourth quarter, even though global economic conditions remain sluggish, due mainly to the effects of lower commodities prices."

Those sluggish conditions are certainly starting to impact the rail industry, with the freight railcar market really starting to slow, especially in light of the slump in the oil market. A report by Wells Fargo earlier this week noted that orders for new freight cars plunged 83% year over year, to 7,374, which is the biggest drop since the late 1980s, and the lowest number of cars since 2010. This is expected to have a big impact on railcar makers like Trinity Industries (NYSE:TRN) and Greenbrier (NYSE:GBX), with Wells seeing "a moderating U.S. industrial environment that could restrain freight traffic and new car demand."

Having said that, if there's a saving grace, it's the fact that Trinity Industries, Greenbrier, and other railcar makers do have a current backlog of more than 122,000 units, which should keep them busy for awhile. However, this trend is something Wabtec investors need to keep an eye on because the company makes many of the parts, including brakes, that are used in freight rail cars.

Looking forward
Despite concerns of a possibility of slowing future Freight Group sales, Wabtec has affirmed its 2015 earnings guidance, with the expectation that it will earn about $4.10 per share. Further, it expects revenue growth to be about 9% for the year -- though that guidance is down slightly from the up-to-10% revenue growth it had guided to just last quarter.

Looking a bit further ahead, it's also worth mentioning that the company sees big things from the Faively acquisition, which Belter says, "will strengthen our position in the global transit business and enhance our future growth opportunities." That deal could help the company turn around its struggling Transit Group at a time when its Freight Group could start to feel some added pressure from the commodities slump.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool recommends The Greenbrier Companies and Westinghouse Air Brake Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.