A significant increase in freight sales boosted the profits of Wabtec (NYSE: WAB), a rail equipment and locomotive manufacturer, in the fourth quarter of 2019.
Fourth-quarter net income totaled $137 million, compared with $34.8 million in the fourth quarter of 2018. The results include revenue from GE Transportation, which Wabtec merged with in late February 2019.
Fourth-quarter net income attributable to Wabtec shareholders was $135.7 million, or $0.71/diluted share, compared with $34.3 million, or $0.36/diluted share, in the fourth quarter of 2018.
“Wabtec delivered strong results for the fourth quarter, concluding a solid year for the company,” said Wabtec CEO Rafael Santana. “While we faced increased challenges in the North American freight market, the full year results demonstrate the strength of our portfolio through increased global scale, a more diversified business mix and significant installed base.”
Fourth-quarter GAAP [generally accepted accounting principles] sales totaled $2.4 billion, compared with $1.1 billion for the same period in 2018, amid higher transit sales and sales from GE Transportation. Offsetting those higher sales were lower sales in freight components and unfavorable foreign exchange rates, the company said.
Total operating expenses also rose. In the fourth quarter of 2019, operating expenses were $448.8 million, compared with $203.6 million for the same period in 2018, on higher engineering and amortization costs, as well as higher selling, general and administrative expenses.
Wabtec’s freight segment sales in the fourth quarter totaled $1.7 billion on acquisitions worth $1.3 billion, although the company grappled with lower sales in freight car components in the quarter as it also experienced unfavorable changes in foreign exchange rates. In contrast, freight segment sales were $421.6 million in the fourth quarter of 2018.
Interest in aftermarket components and acquisitions worth $2 million helped Wabtec’s transit segment sales increase from $701 million in the fourth quarter of 2019, compared with $696 million in the prior-year quarter.
Despite potentially flat sales in 2020 of roughly $8.7 billion, Wabtec expects to see a net synergy benefit of over $150 million resulting from the merger of Wabtec and GE Transportation. It also said net sales, adjusted income and adjusted EBITDA [earnings before interest, taxes, amortization and depreciation] could be lower in the first quarter compared with the remainder of 2020 amid seasonality factors and project scheduling.
“Our multi-year backlog, combined with growth opportunities in services, transit and international markets puts Wabtec in a solid position to manage through the current freight rail cycle,” Santana said. “We continue to make significant progress in our synergy and cost initiatives and expect margin expansion in both segments in 2020. We remain confident that we will exceed our synergy target of $250 million before 2022.”