With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

Industries included in the sector are electrical equipment and industrial machinery.

Fortune Sector Leaders: Industrials

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-384-Westinghouse Air Brake Technologies

Also known as Wabtec Corporation, the company's roots date to the 19th century, when its namesake—George Westinghouse, Jr.—invented and patented a compressed air brake system for trains. Today, the company is a diversified technology provider for rail industries.

This year's Fortune 500 marks the 66th running of the list.

Also known as Wabtec, the Pittsburgh-based company provides products and services for locomotives, freight cars, and other elements of the global rail industry.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Westinghouse Air Brake Technologies Corporation, commonly known as Wabtec, provides services for the freight rail and passenger transit industries around the world. The company builds and sells diesel-electric and liquid natural gas-powered locomotives, along with freight cars and a wide range of other railways products. Wabtec was formed after a merger in 1991 between Westinghouse Air Brake Company and MotivePower.

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Q4 2024

Westinghouse Air Brake (WAB): Company Profile, Stock Price, News, Rankings

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Westinghouse Air Brake

westinghouse air brake

Good day, and welcome to the Labtech Fourth Quarter twenty twenty four Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kyrie Yates, Vice President of Investor Relations.

Thank you, operator. Good morning, everyone, and welcome to Wabtec's fourth quarter twenty twenty four earnings call. With us today are President and CEO, Rafael Santana CFO, John Olin and Senior Vice President of Finance, John Mastlers. Today's slide presentation along with our earnings release and financial disclosures were posted to our website earlier today and can be accessed on the Investor Relations tab. Some statements we are making are forward looking and based on our best view of the world and our business today.

For more detailed risks, uncertainties and assumptions relating to our forward looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. I will now turn the call over to Rafael.

Thanks, Kyra, and good morning, everyone. Before John and I get into the details of the fourth quarter, I would like to share some thoughts on the past year, this year and the next five years. Overall, the Wabtec team has delivered another very strong year. We saw top line growth of 7%, operating margin expansion of 190 basis points, cash conversion of 117% and adjusted EPS growth of 28%. The team continued to lay a solid foundation for us to build on as we look to realize the full potential of our company.

Looking ahead, I'm excited by the underlying momentum of our business and the team's unrelenting focus on driving continuous improvement and delivering for our customers. I believe Wabtec is well positioned to drive continued profitable growth ahead. To that end, our 2025 financial guidance includes mid single digit revenue growth and margin expansion which would deliver our fifth consecutive year of double digit EPS growth. Finally, we are currently three years into our five year long term guidance that was issued in early twenty twenty two. I'm pleased to report that we have largely achieved our five year goals in just three years.

Consequently, we are announcing our new five year long term guidance and we have even more opportunity to drive value today than we did three years ago. These opportunities are evidenced by the launch of Integration three point zero and our continuing efforts to optimize our portfolio which will support over three fifty basis points of margin improvement over the next five years. Our financial position remains strong. We continue to execute against our capital allocation framework to maximize shareholder value by investing for future growth and returning value to our shareholders. And as a result of our performance in 2024 and our confidence in the future, our Board of Directors has increased our dividend by 25% and has authorized another $1,000,000,000 for share repurchases which we announced in December.

Let's move to slide five to discuss our Q4 results. I'll start with an update on our business, my perspectives on the quarter and progress against our long term value creation framework and then John will cover the financials. We delivered a strong fourth quarter. Sales were $2,600,000,000 which was up over 2% and adjusted EPS was up 9% from the year ago quarter. Total cash flow from operations for the quarter was $723,000,000 representing a strong cash conversion of two twelve percent.

The twelve month backlog was $7,700,000,000 signifying continued momentum and visibility across the businesses. Shifting our focus to slide six, let's talk about our 2025 end market expectations in more details. While key metrics across our Freight business remain mixed, we are encouraged by the strength of our business, international market activity and our current pipeline of opportunities across geographies. North American carloads continue to be up for the quarter. Despite this carload growth, the Industries and Wabtec's active locomotive fleet were largely flat when compared to the last year's fourth quarter.

Looking at the North American railcar builds, demand for new railcars was down compared to 2023 and landed at approximately 42,000 cars for 2024. The industry outlook for 2025 is to be down nearly 17%. Internationally, activity is strong across core markets such as Latin America, Africa, Asia and CIS. Significant investments to expand and upgrade infrastructure are supporting a robust international locomotive borders pipeline. In mining, commodity prices and an aging fleet continued sport activity to refresh and upgrade the truck fleet.

Finally, moving to the transit sector, we continue to see underlying indicators for growth. Ridership levels are increasing in key geographies along with fleet expansion and renewals. Next, let's turn to slide seven to discuss a few business highlights. This quarter we converted over $1,000,000,000 of pipeline in new locomotive and modernizations orders. With that context, in North America we secured $355,000,000 in mods within the quarter including the first mods order with FairMax.

These orders demonstrate the need for our Class one customers to continue to invest in their fleets over time. Fourth quarter was also a strong quarter for international orders. We won orders for new locomotives totaling $649,000,000 with several customers. These locomotives will help support the mining and agriculture growth in various international markets. In this context, we would like to highlight Africa, where we continue to capture significant growth opportunities in that region.

We won another order to support the Simandou project, which is the largest mining project ever undertaken in the region. This project will be worth over $1,000,000,000 when you combine the equipment and services opportunities. These international wins demonstrate continued demand for our best in class solutions that drive productivity, reliability and durability for our customers. Moving to our Digital Intelligence business, we signed significant orders with Class one customers for advanced automation train handling solutions. And finally, we won signaling contracts for over $100,000,000 with our North America transit customers.

This is our digital group's strongest year for orders totaling approximately $1,000,000,000 All of this demonstrates the underlying strength across our businesses, the team's relentless focus on execution and the strong pipeline of opportunities which we continue to execute on. Moving to Slide eight, before turning it over to John, I want to briefly discuss our ability to deliver strong and sustainable results. Over the last five years, Wabtec has demonstrated a solid track record of managing through challenging markets, geopolitical issues, hyperinflation and other significant disruptions. We believe our dedicated management team, favorable end markets and our leading technologies and solutions will enable us to remain resilient and more profitable. Our twelve month backlog of $7,700,000,000 provides visibility and support for growth.

The twelve month backlog has consistently grown over the past four years despite a weaker North American rail market and a volatile macro economy. This is in part due to the high level of recurring revenues that our products command in the marketplace. Our track record of strong operating margin expansion across the business is the absence of our ability to deliver productivity, manage costs and price for value we deliver. And finally, we have also demonstrated our ability to consistently generate strong cash flows with cash conversion averaging 98% over the last five years. We expect that our execution combined with the strength of our business, leading products and technologies will result in Wattac being resilient through economic cycles, delivering profitable growth and driving superior shareholder returns.

With that, I'll turn the call over to John to review the quarter segment results and our overall financial performance. John?

Thanks, Rafael, and hello, everyone. Turning to Slide nine,

I'll review our fourth quarter results in more detail. Sales for the fourth quarter were $2,580,000,000 which reflects a 2.3% increase versus the prior year. Sales growth in the quarter was driven by the Transit segment. Excluding the impact of currency, sales were up nearly 3%. For the quarter, GAAP operating income was $334,000,000 The increase was driven by higher sales and improved gross margin as we focus on continuous improvement and productivity.

Adjusted operating margin for Q4 was 16.9%, which was largely flat to prior year. GAAP earnings per diluted share was $1.23 which was up 2.5% versus the year ago quarter. During the quarter, we had net pre tax charges of $32,000,000 for restructuring, which were primarily related to our integration two point zero and portfolio optimization initiatives to further integrate and streamline Webtech's operations. In the quarter, adjusted earnings per diluted share was $1.68 up 9.1% versus the prior year. Overall, Webtech delivered another solid quarter demonstrating the underlying strength of the business.

Turning to Slide 10, let's review our product lines in more detail. Fourth quarter consolidated sales were up 2.3%. Our services sales were down 15.9% modernizations and overhauls and was a reverse of the growth that we saw in the third quarter for our services business. For the full year, services had revenue growth of 3.6%. Equipment sales were up 41.8% from last year's fourth quarter.

This increase was expected and was also the reverse of what we saw in the third quarter. For the year, equipment sales were up a very strong 17.5%. Component sales were up 4.8 versus last year due to higher international freight car sales and industrial products growth, which was partially offset by the lower North American railcar build. Digital intelligence sales were down 1.4% from last year. This was driven by softness in North America, which was partially offset by our international sales of PTC, next generation onboard products and digital mining products.

In our transit segment, sales were up 7.1%. Moving to Slide 11, GAAP gross margin was 30.9%, which was up 0.6 percentage points from fourth quarter last year. Adjusted gross margin was up 0.8 percentage points during the quarter. Our team continues to execute well by driving operational productivity and lean initiatives. Turning to Slide 12.

For the fourth quarter, GAAP operating margin was 12.9%, which was up 0.7 percentage points versus last year. Adjusted operating margin was largely flat year over year at 16.9%. GAAP and adjusted SG and A expenses were up versus the prior year. Engineering expense was $51,000,000 10 million dollars lower than Q4 last year. Now let's take a look at the segment results on Slide 13, starting with the Freight segment.

As I already discussed, Freight segment sales were largely flat during the quarter. The fourth quarter sales were impacted by a shift of our locomotive and mod production to the first half in an effort to level load our quarterly production. GAAP segment operating income was $273,000,000 driving an operating margin of 15.2%, up 1.6 percentage points versus last year. GAAP operating income included $9,000,000 of restructuring costs, primarily related to our Integration two point zero and portfolio optimization initiatives. Adjusted operating income for the Freight segment was $348,000,000 up 0.9% versus the prior year.

Adjusted operating margin in the Freight segment was 19.4% up 0.1 percentage points from prior year. The increase was driven by improved gross margin even despite significant mix headwinds and largely offset by a similar increase in our operating expenses expressed as a percentage of revenue. Finally, segment twelve month backlog was $5,580,000,000 Our twelve month backlog was up 5.4% on a constant currency basis, while multi year backlog of $18,000,000,000 was up 3.2%. Turning to Slide 14, Transit segment sales were up 7.1% at $789,000,000 When adjusting for foreign currency, transit sales were up 7.5%. GAAP operating income was $103,000,000 Restructuring costs related to Integration two point zero and portfolio optimization were $21,000,000 in Q4.

Adjusted segment operating income was $130,000,000 Adjusted operating income as a percent of revenue was 16.4, up 1.5 percentage points. During the quarter, adjusted gross margin was up behind favorable mix and integration two point zero savings. Gross margins were partially offset by operating expenses being higher as a percentage of revenue. Finally, Transit segment twelve month backlog for the quarter was $2,100,000,000 Our twelve month backlog was up 5.6% on a constant currency basis, while the multi year backlog was up 5%. Now let's turn to our financial position on Slide 15.

Fourth quarter cash flow generation was very strong at $723,000,000 resulting in total year cash from operations of $1,830,000,000 an increase of 52.7%. During the year, cash flow benefited from significantly higher net income, improved working capital and the receipt of a tax refund. Our balance sheet and financial position continue to be very strong as evidenced by first, our liquidity position, which ended the quarter at $2,210,000,000 and our net debt leverage ratio, which ended the fourth quarter at 1.5x. The increase of our year end cash and the reduction in our year end leverage ratio was in anticipation of funding the acquisition of Evidence Inspection Technologies division that we announced on January 13, which is expected to close in the first half of the year. During the year, we repurchased nearly $1,100,000,000 of our shares and paid $140,000,000 in dividends.

As a result of our performance in 2024 and our confidence in the future, our Board of Directors approved a 25% increase in the quarterly dividend and in early December increased our existing share repurchase authorization by $1,000,000,000 We continue to allocate capital in a disciplined way to maximize returns of our shareholders. Moving to Slide 16. I would like to touch on the progress we made against our Integration two point zero and portfolio optimization initiatives. With regards to Integration two point zero, recall that this was a restructuring program that anticipated one time expenses of between $135,000,000 to $165,000,000 That would yield an incremental $75,000,000 to $90,000,000 of run rate cost savings by the end of twenty twenty five. With the program to date restructuring expenses of $146,000,000 we achieved $87,000,000 of run rate savings as we exited 2024.

And we now expect $97,000,000 of run rate savings as we exit 2025 at an estimated cost of $161,000,000 Regarding our portfolio optimization initiative, we have executed against all planned dispositions of the non strategic product lines that were identified to help improve our focus and profitability while reducing manufacturing complexity. Under the program, we have incurred $56,000,000 of expenses versus an expected $85,000,000 Overall, we could not be happier with the progress our team has made against our Integration two point zero and portfolio optimization goals. It helped position Webtech to realize the multi year margin expansion that Rafael mentioned earlier. Now moving to Slide 17, to quickly recap the year. Overall, the team delivered a great year for all our stakeholders.

We drove revenue growth of 7.3%, expanded our operating margins by 1.9 percentage points, generated robust cash flow and grew adjusted EPS by 27.7%. The resiliency of the business and strong execution provides us with a solid foundation for profitable growth as we enter 2025. With that, I'd like to turn the call back over to Rafael.

Thanks, John. Now let's turn to Slide 18 to discuss our 2025 outlook and guidance. We believe that the underlying customer demand for our products and solutions continues across the business. Our international pipeline remains strong and our twelve month and multi year backlogs provide visibility for profitable growth ahead. The team is committed to driving top line growth and margin expansion in 2025.

With the statures in mind, we expect 2025 sales of between $10,700,000,000 to $11,000,000,000 which is up 5% at the midpoint from last year and adjusted EPS to be between $8.35 and $8.75 up 13% at the midpoint. We also expect cash flow conversion to be greater than 90% despite delivering 117% cash conversion in the prior year. I'm confident that Wabtec is well positioned to drive profitable growth and maximize shareholder returns in 2025 and beyond. And because of our confidence in the future, I'd like to take the opportunity to update our long term guidance. Moving to slide 20, let's discuss our new five year plan in more details.

Over the last three years, we executed our previous five year plan ahead of expectations. We generated strong cash flows and applied that cash towards maximizing shareholder returns. We strengthened the balance sheet and invested in the business for future growth. Looking forward, our priorities and our value creation framework remain unchanged. As we look forward, our team will continue to leverage our leadership position.

We expect to grow our business faster than the industry and to deliver mid single digit organic top line growth. We are committed to driving over three fifty basis points of margin expansion and we expect to achieve double digit EPS growth over that period. Finally, we also expect to generate strong cash flow that will average greater than 90% cash conversion through 2029. Now let's move to Page 21. Let's spend a minute to discuss what we expect to achieve in terms of organic revenue growth and incremental margin expansion over the next five years.

Starting with revenue growth, we expect our revenue to grow at an average annual growth rate of mid single digits. We see three drivers to reach this mid single digit growth. First is the underlying industry's organic growth rate in the low single digits. Second, North America has one of the oldest fleets in the world. This combined with growing international opportunities will drive locomotive and modernization sales over the next five years.

Finally, the innovation that we provide to our customers enhances lifecycle value by driving improved efficiencies and ultimately delivering an attractive return for their investment. Next, let's talk about margin expansion. As mentioned earlier, we see even more cost opportunities in the next five years than we did three years ago. Through our strong focus on simplification and continuous improvement, combined with capital investments in high return projects and pricing for value, we expect to drive margin improvement of greater than three fifty basis points over the next five years. Moving to page 22, I would like to discuss our new integration three point zero and portfolio optimization initiatives as the enablers to the greater than three fifty basis points margin expansion.

As we have discussed, Integration two point zero was a success and we have momentum as we move into our Integration three point zero initiative. The details of this effort are seen on this page and will focus on simplifying, streamlining and consolidating our operations. To achieve these goals, we will take what we learned from our first program and leverage our strong execution and continuous improvement mindset to deliver on a goal of between $100,000,000 to $125,000,000 of additional run rate savings by 2028. We're also announcing today our second phase of portfolio optimization. We will continue to prune product lines that are not a strategic fit.

By exiting those product lines, we will improve our focus and profitability while reducing manufacturing complexity. Sales from these product lines totaled about $100,000,000 of sales in 2024 and represented a lower than average margin profile. Now let's wrap on slide 23. As you heard today, our team continues to deliver on our value creation framework, thanks in large part to our resilient installed base, world class team, innovative technologies and our continued focus on our customers. With solid underlying demand for our products and technologies and rigorous focus on continuous improvement and cost management, we feel strong about the company's future, thereby maximizing our shareholders' returns.

With that, I'd like to thank our team for their great work this year and their continuous commitment to drive top quartile returns. I will now turn the call over to Kyra to begin the Q and A portion of our discussion. Kyra?

Thank you, Rafael. 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.

We will now begin the question and answer session. The first question today comes from Rob Wertheimer with Melius Research. Please go ahead.

Hi, thanks. I actually wanted to start one out with a strategic question on your long term framework. Just for clarity, you have three fifty books now, I think it was two seventy five at the midpoint on the last framework and the base year is updated, right, from '22 to '25. So you sort of stack the margin improvements from that period along with the March versus the February. That's the one question.

And then more strategically, you look at that walk on Slide 21 and you have 80 bps, 85 bps of margin expansion from revenue growth. I guess that's where pricing is embedded. I'm not sure if that's all pricing. So how are you thinking about your pricing power strategically? Do you feel

the guide? Do you have room to flex? I'm just curious about anything about pricing. Thank you.

Thanks, Rob. Good morning. Let me start and then I'll pass it on to John here. But I'll start with fundamentals of the business are strong. We finished '24 with every single one of our businesses driving profitable growth.

Orders in '24 were 20% higher than 23% and we have strong coverage going to 2025%. The quality of our backlog has continued to improve. I would say there is a sense we can drive further simplification cost out across the business. The momentum is there and this will drive on our cycle of profitable growth for Wattac. I think we've got a portfolio that's well positioned to provide customers a significant payback.

We're seeing fleets are old, so we have here a significant opportunity to continue to price for the value that we deliver out there and we continue to expand that visibility in terms of coverage. The coverage for this year is aligned with the coverage we've had for the previous three years. And as we provide this guidance, we see us starting some of that really margin expansion stronger I have here of the first year. John?

All right, Rob, let's talk about margins and the long term plan. So you're absolutely right. When we look at the first five year plan that we kind of truncated at three years, we were expecting a midpoint of two seventy five basis points. We overachieved that in a three year period of time versus the five and now we're looking to deliver another more than three fifty basis points for the next five years and that's using 2024% as the base, Rob. I think the biggest point here is to point out that we see more opportunity today than we did three years ago in terms of our ability to grow margins.

We've got a lot of experience with it and we see more of that opportunity now that we've been through the last three years. So we feel real good about that. Rob, you asked a little bit about how we're going to deliver the three fifty basis points. You started out with the pricing, but I'd like to go back and talk a little bit about the cost side. As when we look

going to do it is similar to the way that we did the first three hundred basis points over the last three years is about two thirds of it is going to be driven by our focus on cost management. And that comes in several flavors. One you're very well aware of and that's integration will now be three point zero as well as continuous improvement and our further propagation of lean throughout the organization. And then finally, we get the absorption benefit and we also expect SG and A to grow at a slower rate over that period of time than our revenue. So that leaves the other third.

And I would say Rob that the other third is really driven by innovation and our ability to continue to innovate and bring products out to the to our customers that will drive value for them and a return on investment that they're looking for. And with that, it allows us to drive increased value and what we would call Rob is pricing for value. The other part of pricing is really cost recovery from inflation. And as we've talked about a lot of that is automatically built into price escalators that we have across over 60% of our revenue. So again, we feel real good about where we're at today, what we see today versus what we saw three years ago and our ability to drive over that three fifty basis points in the next several years.

The next question comes from Angel Castillo with Morgan Stanley. Please go ahead.

Hi. Good morning and thanks for taking my question. I wanted to just maybe go back to when you think about the kind margin opportunity, maybe focus more so on the plus side. What kind of leverage do you see or buckets kind of drive incremental upside? I know it's early you just announced the $100,000,000 to $125,000,000 but just to the extent that you see incremental opportunity as you noted to drive more margin expansion, can you just kind of lay out those buckets for us?

Angel, let me just start with the strong pipeline of opportunities we have, which really provides not just strong coverage in 'twenty five, but we're really strengthening the visibility beyond that. As we saw, I mean, in the fourth quarter alone, we've got over $1,000,000,000 of orders for new locomotives and modernizations. So that demand continues. International growth, it's really a very strong market for us. We are winning.

We're winning in Africa, winning in Kazakhstan, in Brazil, in Chile, in Australia. And we're continuing to drive momentum. A lot of that growth, especially in international strengthens the visibility here into '26, '20 '7 and moving forward. In North America, we continue to see demand on the new locomotives and mods. Our customers continue to invest for improved costs.

North America is sitting one of the oldest fleets for rail dent markets we serve and the need to invest here for continued reliability and reducing cost is there. I think the other piece is the quality of the backlog. It's stronger. I think really the margin rate in the overall business will benefit from that. On the top of that, you add the fact that I mean, we've really been keen on driving lean efforts, cost actions driven by simplification.

John spoke about like really renewed and stronger sense of cost out opportunities. And with integration three point zero and portfolio optimization, I think this will drive another cycle of significant profit for Wattac. So with that, we'll continue to see variation on quarters, but we see strong progress and momentum continues.

That's very helpful. And maybe just to clarify on the strong North America locomotive demand, Are you seeing any step change in terms of the activity or desire to kind of replace equipment there? And the 1% to 2%, is that the renewal, is that just basically a continuation of what you've seen in the last couple of years? Or do you anticipate it returning to kind of historical levels of replacement?

Let me be just very specific there. If you look at the mods and new locomotives combined, that's still growing at high single digits as we go into 2025. I think what the changes there is really some customers that are investing now and investing for new, but that's not a change from going from mods to new. It's really an element of when customers buy and the volumes there in that context. So the combination of both for North America continues to grow in the high single digits.

In terms of as I look forward, we're continuing to invest in technology as John described. What he saw in terms of the modernization of the FDL advantage of locomotives, you're going to see a bigger and better value proposition going to the EVO platform, which you're going to get like up to 7% of fuel efficiency. So we see that as an opportunity to actually continue to build momentum there.

The next question comes from Saree Boroditsky with Jefferies. Please go ahead.

Hi, thanks for taking the question. Maybe just kind of turning a little bit to digital, your outlook contemplates for 2025 slower demand in North America. Maybe just what the feedback has been on digital and why the North America has been softer here and what can drive this market for long term growth?

Yes. Well, first, I think strong close for our business as I think about how we've really been churning that around with a softer North American market, but I think we've continued to talk about stronger international demand. The business closed the year with $1,000,000,000 in orders. That's one of the strongest in the last five years. And we see higher demand for onboard locomotive products, digital mining technologies despite of this softer demand in North America.

And we continue to see a pipeline here with higher demands from international and that's both PTC, the onboard locomotive products. And when you think about it, the softer demand in The U. S. Is really the discretionary element of OpEx and some of the impact we've had from the commuter signaling business. I think recurring revenues and short term convertibility continue to be here focus area, but this business has really grown profitably last year and it's off to growing profitably again in 2025.

So positive dynamics there, international really leading the growth here.

And maybe just a little bit of freight margins. You've been guiding them weaker in the fourth quarter. So I guess it's not that surprising, but it does follow really strong results in the first nine months of the year. Can you just talk about how to think about the step up in freight margins into the first quarter and full year 2025? And how do you think about mix given the expectation for higher new locomotive shipments and lower mods?

Thanks, Gary. This is John. I'm sorry, I'm glad you pointed out. We've certainly been kind of following along in the cadence of the year that we expected. And that had a fair amount of the profitability in the first half of twenty twenty four.

And so as we get through the fourth quarter, it's exactly what we expected. But Siri, I would also encourage everyone to divorce kind of the financial growth from the underlying momentum. The underlying momentum as we exit the fourth quarter is very strong. And with that, it gets back to your question with regards to kind of where does margins go from here. We finished this quarter at what 16.9%.

We would expect that to pop back up. Remember why the margin is down this quarter again goes back to that cadence. As we pulled forward a fair amount of mix with our production schedule into the third quarter and into the third quarter and out of the fourth quarter. So we saw that sequential decline in the third from the third to the fourth quarter which we expected and we would expect that to pop back into the first quarter of next year.

The next question comes from Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good morning. So I want to talk about the 2025 outlook, not the five year, which I think you've delved into a bunch. But maybe the upside downside given the range you've talked about and given the twelve month backlog at I think you said just over $7,500,000,000 which is now about I guess 70% of the midpoint of your revenue range. Maybe talk a little about those the upside downside of that?

And then just on the last question, maybe the move to smooth out your base through the year. You just gave kind of 4Q, 1Q thought. Should we see a more level throughout the year? Or do you still have kind of anticipated dips in any given quarter based on that mix flow? Thanks.

Hi, Ken. This is John. Let's start with the cadence of our earnings next year. And I'm glad you pointed that out is we spent a lot of time and energy in 2024 kind of level loading our factories more for in particular mods and logos. And we did a great job and the operations team did a fantastic job.

So what does that mean going forward? As we look at the cadence of revenue kind of first half, second half of '20 '20 '5, we would expect that growth to be very equal or balanced between the first half. We're always going to have variation, but we would expect a very balanced level of revenue growth. When we look at earnings, earnings is going to first half is going to be more tempered. The growth will be more tempered in the first half than the second half.

A couple of reasons for that as we look at a year ago, we had very strong margin growth in the first half of 3.1 percentage points and 0.8 percentage in the back half. And the second reason is as we look at our programs such as Integration three point zero and others productivity programs, we'll see that continue to build margin throughout the year. So again, first half we'll see growth but more tempered than the second half. And when we look at the first quarter, you should expect first quarter margins to be in line with what they were a year ago. And again, going back to Siri's question that we'll see margins on a sequential basis rise quite significantly between the fourth and the first quarter.

Great. And thoughts on the backlog versus the total?

I guess the upside downside, right, in terms of your backlog is about 70% of the total. So maybe your thoughts on what's the upside downside to that?

coverage, number one, the twelve month backlog we feel very good about as we look forward. We're at 5.5% on a comparable basis of that backlog. 72% of that, Ken, is kind of set in orders, right? So that will provide some of that stability against that and some of the variation that we could have in that number. The other 28 is our flow business, right?

And we've got various things that flow through that business. And when we look at a big piece of it or a part of that is the freight car build. And with that we expect in the industry expecting that to be down a little bit. So a little bit of headwind there and there may be some variation depending on how the car build comes out. The other part of the flow business is largely in various aftermarket parts and whatnot and we expect growth out of that.

So we feel very good about the guidance that we put out there and the midpoint which is around 5%. But we're going to see normal variations but we feel real good with the backlog that we have as we move into 25%.

And just can you just clarify, did you exclude the Evidence Inspection revenues or the acquisition from your outlook as well?

Yes. Thanks, Ken. EBITDA is not included in the guidance that we provided this morning at all. There's nothing in there. What we will do is we will update our guidance after we close on that transaction.

And we would expect that to be probably toward the second the latter part of the second quarter. With that, you could expect a fair amount of adjustment in revenue, right, because the asset that we're buying in 'twenty four had revenue of over $430,000,000 So we get about a half a year in there plus the growth on that. In terms of EPS, Rob, wouldn't expect that much growth, right? In the first year, there's a fair amount of interest. We're very pleased with the transaction and that will have accretive EPS in the first year, but even more so in the first half.

But again, that will be more of a slight increase to EPS.

The next question comes from Daniel Imbro with Stephens. Please go ahead.

Hey, good morning, guys. Thanks for taking our questions.

Rafael, John, if we could dig a little more into the revenue growth side. So in the fourth quarter, it does look like organic growth decelerated a bit here. When we look at that deceleration, is that just pricing growth slowing as we lap inflation or kind of what was behind that in the fourth quarter? And then similarly, I know you just talked about the backlog, but ending the year of 3%, another bit of a decel. Is that just you guys walking away from lower margin business?

Rafael, you mentioned the quality has improved. So if you could just expand on maybe why that has slowed and what you think the right level of growth should be if we were to X out some of those factors?

of that, Daniel. With regards to the revenue growth slowing in the fourth quarter, we are not seeing revenue growth slowing. We're not seeing the business momentum slowing. What we're seeing is simply the cadence of how we have produced our products, right, in particular the mods and locals on production and delivery. And so all of those were expected.

Actually they were expected four quarters ago when we knew what we were going to be producing in the fourth quarter of this year. So what you're seeing on our top line growth is simply the sales that we have off the production largely on mods and locals. But the underlying momentum of the business has been very quarters that we have and we feel real good about that moving into next year, right? And those lead indicators of future growth are the backlog that you mentioned. And the headline is at 3%, but the underlying comparable growth is at 5.5%.

That's right in line with what we would expect at this point of the year. And going back to the comments that we talked about in terms of coverage, we've got a strong coverage that's very comparable to the way it has been the last three years. So that gives us a lot of confidence as we move into 2025. And as Rafael had mentioned, the borders were up 19.7% this year. So that gives us that forward looking momentum.

And as we mentioned in the key highlights, we had over $1,000,000,000 of mod local orders in the fourth quarter alone. So everything's moving in the direction that we would expect to continue on with that underlying momentum that is growing in that mid single digit range regardless of what you're seeing in the fourth quarter with regards to the kind of the accounting view of what was shipped versus what's being consumed.

Westinghouse Air Brake (WAB) Q4 2024 Earnings Call Transcript

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