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Text: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.
We appreciate you joining us today.
Turning to slide three.
We continue to see a recovery across the global freight and transit rail markets, with North American freight volumes and equipment utilization sequentially improving in the first quarter and investments in transit infrastructure continuing.
These directional trends, along with the focused performance of our team and execution against our strategic plan are reflected in our first quarter results.
Total sales for the quarter were $1.8 billion.
This was largely driven by international freight markets, services and our recovery in transit, but offset by continued weakness in the North America OEM market.
Adjusted operating margin was 15.1%, driven by lean initiatives, cost actions and favorable mix from mining and mods.
Cash conversion was strong with cash flow from operations of $292 million, cash generation was due in large part to good working capital management, allowing us to deliver on our financial priorities, including the strategic acquisition of Nordco, which I'll touch up on more in a moment.
Total multiyear backlog was $21.7 billion, up sequentially over the prior quarter, providing us better visibility into 2021 and beyond.
Overall, we ended the quarter with adjusted earnings per share of $0.89, a strong reinforcement that our teams are continuing to take the necessary steps to control what we can, deliver long-term growth of the company and increased shareholder value.
In the area of synergies, we're on track to deliver the full run rate of $250 million in synergies this year, and we have positioned the company for long-term profitable growth.
In the first quarter, we exited all shared service agreements stemming from the GE Transportation merger ahead of schedule.
This was a tremendous execution by the team on a complex transaction.
In addition, we continue to take aggressive actions on structural cost.
This includes reducing total operational square footage by 5% since January of last year, and we will further reduce our square footage by an additional 2% for the remainder of 2021.
Moving forward, we'll continue to drive additional cost reductions through lean initiatives and balance our focus on execution with strategic investments in high-return opportunities that drive long-term profitable growth.
You saw that with our recent acquisition of Nordco, which is a leader in the maintenance of waste space, with 60% of its revenues coming from aftermarket services and a significant installed base of over 5,000 units.
We really like this business, and it's leading edge technologies.
It opens up significant opportunities to expand domestically and internationally in the growing maintenance waste segment while driving long-term profitable growth.
Integration activities are already under way, and we expect this strategic acquisition to be accretive to earnings, cash flow and return on invested capital in 2021.
On the commercial front, we're also focused on driving growth and won some key orders in the quarter despite a challenging environment.
This included a significant deal for our FDL Advantage product, which is a fuel upgrade cash.
As we have shared before, there are more than 10,000 FDL locomotives running globally.
With this next-gen technology, we're opening up a multimillion-dollar pipeline of opportunity that is helping customers drive down fuel consumption by up to 5% as well as drive down emissions.
That means for a single locomotive burning 250,000 gallons of fuel, it can translate into a $25,000 in savings per year.
Also, when it comes to technology differentiation, and sustainable transportation, we completed a significant operational milestone with our flex drive battery electric locomotive, testing it in revenue services with BNSF across more than 13,000 miles of track.
Through this demonstration, the flex drive was able to reduce both fuel consumption and emissions by more than 11%, a game changer in decarbonizing rail.
We continue to see growing interest in this next-gen technology from customers in both North America and internationally, and we expect our battery electric locomotive to become an important area of growth for the company over the long term.
In digital and electronics, we're also leading the way in rail, safety and utilization.
We closed the key order for positive train control internationally, and we are encouraged by the strong order pipeline for international PTC expansion.
Finally, we had a solid quarter in transit, winning new brakes, doors, and HVAC contracts in India, Taiwan and France, including a significant order for platform doors and gates at over 30 train stations in Marcel.
Overall, our order pipeline continues to strengthen, driven by multiyear orders in freight services, equipment and digital electronics.
Based on this factor and orders, Wabtec is in a strong position to drive profitable growth and perform for our shareholders, for our customers and for our employees.
We had a solid operational start to the year, despite the challenges in our North America OEM markets and ongoing disruption from the pandemic.
We demonstrated our ability to deliver on synergies, generate cash flow invest for the future and position Wabtec for profitable growth.
Turning to slide four.
I'll review the first quarter in more detail.
Sales for the first quarter were $1.8 billion, which reflects a 5% decrease versus the prior year, driven by lower North America OE freight markets as a result of the disruption caused by the pandemic.
For the quarter, operating income was $192 million, and adjusted operating income was $277 million, which was down 9% year-over-year.
Adjusted operating income excluded pre-tax expenses of $85 million of which $70 million was for noncash amortization and $16 million of restructuring and transaction costs related to the acquisition of Nordco, along with restructuring due to the 2021 locomotive volumes and restructuring in our U.K. operations.
Adjusted operating margin was 60 basis points lower than the first quarter last year, but up 110 basis points from the fourth quarter versus last year, adjusted operating margin was impacted by under absorption costs at our manufacturing facilities, stemming from fewer locomotive deliveries as well as sales mix impacted from lower digital electronics and a higher level of transit sales.
At March 31, our multiyear backlog was $21.7 billion, up quarter-over-quarter, our rolling 12-month backlog, which is a subset of the multi-year was $5.7 billion and continues to provide good visibility into the year.
Looking at some of the detailed line items for the first quarter, adjusted SG&A declined 2% year-over-year to $224 million.
This was the result of cost actions during the downturn and excludes $11 million of restructuring and transaction expenses.
SG&A expense benefited from headcount reductions and the realization of synergies.
For the full year, we expect SG&A to be up about 5% versus 2020, driven by the normalization of costs following the COVID disruption.
That said, we will continue to aggressively manage headcount and structural costs.
Engineering expenses decreased from last year.
This was largely due to the lower locomotive volume outlook for the year as well as some changes in project timing.
Overall, our investment in technology is still expected to be about 6% to 7% of sales.
Amortization expense were $70 million.
For 2021, we expect noncash amortization expense to be about $285 million and depreciation expense of about $195 million.
Our adjusted effective tax rate was 27.5%, which was higher than year-over-year due to certain discrete items during the quarter.
We expect a full year 2021 effective tax rate to be about 26%.
And the first quarter GAAP earnings per diluted share were $0.59 and adjusted earnings per diluted share were $0.89.
Now let's take a look at the segment results on slide five.
Across the freight segment, total sales decreased 9% from last year to $1.2 billion, primarily driven by North America OEM markets but partially offset by strong services and aftermarket growth.
In terms of our product lines, equipment sales were down 36% year-over-year, mainly due to zero deliveries in North America, which resulted in roughly 50% fewer locomotive deliveries versus last year, a dynamic that unfortunately persists.
However, mining was a bright spot with units and revenues up double digits during the quarter.
In line with improving freight traffic, our services sales improved a solid 13% versus last year and was up 3% sequentially.
This was largely driven by strong modernization deliveries, and higher aftermarket sales from un-parking of locomotives due to the extreme weather in the quarter.
I'd note that the timing of mod deliveries vary from quarter-to-quarter, but we expect our services sales to improve with the gradual recovery in freight volumes.
Digital electronics sales were down 10% year-over-year as orders shifted to the right in North America due to the COVID disruption.
Yet, we had another quarter of strong momentum for multiyear orders and continue to see a significant pipeline of opportunities in our digital electronics product line as customers focus on safety and improved productivity.
Component sales were down 8% year-over-year.
This is compared to a 45% lower railcar build year-over-year, demonstrating the diversification within our Components business.
We continue to see signs of improvement in demand for aftermarket components as more railcars come out of storage.
Freight segment adjusted operating income was $214 million for an adjusted margin of 18.1% versus last year, the benefit of synergies and cost actions were offset by sales mix as well as under absorption due to lower locomotive deliveries.
We will continue to execute on our synergy plans and further improve costs to drive margin improvement.
Finally, Freight segment backlog was $18 billion, up from the prior quarter on broad multiyear order momentum across the segment.
Turning to slide six.
Across our Transit segment, sales increased 3% year-over-year to $647 million, driven largely by steady aftermarket sales and favorable foreign exchange rates, offset somewhat by the disruption from the COVID-19 pandemic.
OE sales were roughly flat year-over-year, demonstrating continued investments and green infrastructure.
Aftermarket sales were up about 5% from last year.
We expect aftermarket sales to continue to improve as transit ridership and services increase globally.
Adjusted segment operating income was $79 million, which was up 6% year-over-year for an adjusted operating margin of 12.2%.
Across the segment, we continue to drive down cost, and improved project execution, demonstrated by our good operating performance despite a challenging environment due to the pandemic.
We are pleased with the momentum under way, and the teams are committed to execute on more actions to drive 100 basis points of margin improvement for this segment in 2021.
Finally, Transit segment backlog was $3.7 billion.
Now let's turn to our financial position on slide seven.
Despite a seasonally challenging quarter, we generated $292 million of operating cash flow, demonstrating the resiliency and quality of our business portfolio.
Cash flow was driven largely by good conversion of net income and focused working capital management, including a $93 million incremental benefit from accounts receivable securitization, which provides attractive financing and provides liquidity.
During the quarter, total capex was $27 million.
2021, we expect capex to be about $180 million or about 2% of our expected sales.
Overall, our strong cash generation allowed us to execute on strategic plans and capital allocation priorities, including the strategic acquisition of Nordco, which will drive profitable growth for Wabtec.
Our adjusted net leverage ratio at the end of the first quarter was 2.7 times, and our liquidity is robust at $1.7 billion.
As you can see in these results, our balance sheet remains strong, and we are confident we can continue to drive solid cash flow generation, giving us the liquidity and flexibility to allocate capital to grow shareholder value.
Turning to slide eight.
Let's look at some of the market dynamics by segment.
Overall, we're seeing a gradual recovery across most end markets as global economic activity improves.
And we're continuing to monitor the evolving COVID situation in regions like India.
This aligns with what you've heard from our customers as well.
While we continue to work through the trough in the OEM North American market, where new local orders remain stagnant, we are encouraged by the sequential improvement in freight volumes and a broad recovery across agriculture, intermodal, in the industrial markets.
Locomotive parkings, after peaking to a record high in 2020, are improving as a result of the increased freight traffic and demand is stemming from weather disruptions during the quarter.
We expect demand for reliability and productivity to improve as railroads continue to recover.
This will put us in a position of strength across our freight portfolio.
When it comes to North America railcar built, railcars are coming back into use, more than 20% of the North American railcar fleet remains in storage, but it's back to pre-COVID levels.
Industry orders for new railcars remain weak.
And forecast, estimate the railcar build this year to be below 30,000 cars.
We have a strong order pipeline internationally, and we expect long-term revenue growth in several of these markets going forward.
And in mining, market conditions are also improving.
Transitioning to the transit sector, rider shift is uneven, but recovering as economies open up.
We are watching short-term dynamics as the pandemic evolves in several geographies, including India and Europe.
Overall, the long-term market drivers for passenger transport remains strong in infrastructure spending for green initiatives continue to be a focus, especially as governments globally churn to rail for clean, safe and efficient transport.
Turning to guidance for the year.
We are updating our sales guidance to $7.7 billion to $7.9 billion and updating adjusted earnings per share guidance to a range of $4.05 to $4.3.
This largely reflects upside from the acquisition of Nordco, our operational execution to date and visibility to backlog.
Consistent with our initial forecast for 2021, with more growth weighted to the second half of the year we expect second quarter earnings only slightly higher than the first quarter.
This is in line with the positive and gradual trends in our freight markets.
That said, we are seeing disruption from the resurgence of COVID, especially in a key region for us like India, and we will continue to take swift and necessary action as conditions evolve.
Finally, we remain confident in delivering strong cash generation for the year as well as margin expansion to prioritize cost actions.
Turning to slide nine and to conclude, I'm proud of the strong execution by the team in the first quarter despite a challenging environment.
As we go forward, we will continue to lean into the strong long-term fundamentals of the company and remain committed to executing on our strategic plan.
This includes reducing costs and executing on synergies, driving margin expansion across our Freight and Transit segments generating strong cash flow and delivering long-term profitable growth.
As we've said before, Wabtec's mission holds a larger purpose to move and to improve the world and our teams globally leave up to this mission every day.
After demonstrating a strong performance in 2020 and in the first quarter of '21, I'm confident that this company will drive profitable long-term growth and be a leader in transitioning our customers and the industry to a more sustainable future.
We will now move on to questions.
But before we do and out of consideration for others on the call, I ask that you limit yourself to one question and one follow-up question.
If you have additional questions, please rejoin the queue.
Operator, we are now ready for our first question.

user
q1 adjusted earnings per share $0.89.
q1 gaap earnings per share $0.59.
sees fy adjusted earnings per share $4.05 to $4.30.
sees fy sales $7.7 billion to $7.9 billion.
q1 sales $1.8 billion.
wabtec corp - on-track to deliver $250 million run-rate of synergies from ge transportation merger in 2021.
wabtec corp - at march 31, 2021, wabtec's total multi-year backlog was $21.7 billion.

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