Zacks_Analysts' Blog : Wabtec Cuts Guidance After Weak Q2 - Analyst Blog

Wabtec, a global provider of technology-based products and services for the freight rail and passenger transit industry, has about 50 manufacturing plants, service centers and sales offices across the globe The Wilmerding, PA-based company said that quarterly revenue fell 14.4% year over year to $334 million, missing Wall Street expectations.

Revenue from Transit Group grew 4% year over year to $197.9 million, on account of higher sales of subway car components coupled with the acquisition of European rail braking equipment maker POLI SpA. The Freight Group, on the other hand, plunged 32% year over year to $136.1 million on weaker-than-expected freight rail markets, which affected the demand for new cars and locomotives. Wabtec's overall backlog is over $1 billion at present.

Gross margin slipped to 27.4%, a decrease of 40 basis points (bps) over the year-ago quarter. This was primarily due to the product mix as the Freight Group, which is a higher margin segment, experienced sluggish performance. Operating expenses climbed 4.4% year over year to $54.9 million. Operating margin came in at 11.0%, a decline of 330 bps, compared to the year-ago quarter. The dip in operating margin was caused by higher amortization (related to acquisitions) and engineering expenses, as well as increased COGS and SG&A expenses as a percentage of revenue.

The company also stated that its total debt stood at $352 million at the end of the quarter, a reduction of $11 million, against the previous quarter. Wabtec also generated cash from operations of $44 million in the quarter, a major portion of which was deployed to reduce debt and buyback $12 million worth of stock.

Meanwhile, citing continuation of sluggish conditions in its freight rail markets, management expects full-year sales to shrink by 10% over the year-ago period, which amounts to approximately $1.42 billion.

The company also slashed full-year earnings guidance to between $2.35 and $2.55 per share, against the earlier prediction of $2.45 to $2.75 per share. The revised outlook is in-line with the consensus estimate of $2.40 per share, which has slipped by 14 cents, or 5.5%, over the past week.