Wabtec Posts 16 Percent EPS Gain in Q2

Key Points

• - Adjusted earnings per share rose 15.8% in Q2 2025, beating non-GAAP EPS estimates, while GAAP revenue missed expectations by 2.3%.

• - Operating margins expanded notably in Q2 2025, and the Transit segment delivered strong 8.7% GAAP sales growth.

• - Cash flow from operations (GAAP) declined 11.1% year over year, compared to Q2 2024.

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Westinghouse Air Brake Technologies (NYSE:WAB), a global supplier of equipment, systems, digital solutions, and value-added services for transit and freight rail, released its second quarter 2025 results on July 24, 2025. The company reported adjusted earnings per share of $2.27, topping analyst estimates of $2.18. However, revenue (GAAP) came in at $2.71 billion, missing expectations of $2.77 billion. Margins yet again improved in Q2 2025, but cash flow from operations was notably lower than last year. The quarter highlighted margin management and aftermarket sales growth, but flagged ongoing challenges in cash conversion and supply chain timing.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Recent Focus

Westinghouse Air Brake Technologies specializes in providing integrated technology and equipment for the rail industry. Its business is split between two main segments: Freight, covering locomotives, components, digital systems, and services for commercial and industrial rail; and Transit, which focuses on passenger transit vehicles, parts, and support services. These offerings include original equipment manufacturing (OEM), aftermarket services, and technology solutions.

The company relies on a global installed base and recurring revenue from aftermarket and service work, which represented approximately 60% of annual sales in 2024. Key success factors include completing strategic acquisitions to expand its global footprint, innovating in digital intelligence products and sustainable rail technology, and developing solutions for both Freight and Transit customers. Recent years have seen high focus on margin discipline, supply chain management, and scaling international operations.

Quarter Highlights: Financial and Operational Developments

Adjusted earnings per share rose 15.8% in Q2 2025, exceeding estimates by $0.09. This outperformance resulted from firm cost controls and a favorable business mix, particularly margin expansion. The company’s gross margin (GAAP) reached 34.7% in Q2 2025, up by 1.7 percentage points over the prior year, with GAAP operating margin also improving to 17.4%.

Despite the earnings beat, GAAP revenue growth landed at 2.3% in Q2 2025. Wabtec missed analyst revenue forecasts (GAAP). The Freight segment, which provides diesel locomotives, digital intelligence products, and components, saw GAAP sales nearly flat compared to last year. Supply chain part disruptions hit locomotive deliveries, pushing some sales into the second half of 2025 and leading to a $64 million GAAP revenue shortfall compared to expectations. This segment’s services sales, however, grew 6.0%, showing the value of the recurring aftermarket business in supporting margin stability.

The Transit segment, offering OEM systems and parts for passenger transport, was a standout with 8.7% year-over-year GAAP sales growth. Both new equipment and aftermarket sales contributed, growing 13.9% and 4.8% respectively compared to Q2 2024. Transit's adjusted operating margin increased by 2.5 percentage points. International business continued to outperform North America in both growth and profitability over the past couple of years, as confirmed in analyst commentary and management remarks.

Operating cash flow fell 11.1% compared to Q2 2024, coming in at $209 million. This decline was mainly due to higher inventories and delayed locomotive deliveries. Operating cash flow conversion (non-GAAP, operating cash divided by net income) dropped to 46%. Management attributed this to timing issues and expects normalization in the second half, but risks remain if supply chain lumpiness continues.

Strategically, the company completed the acquisition of Evident Inspection Technologies Division, committing $3.5 billion to investments so far in 2025. These acquisitions are expected to immediately increase adjusted earnings and adjusted EBITDA margins, aligning with ongoing sustainability initiatives.

Management pointed to a growing 12-month backlog of $8.21 billion as of Q2 2025, up 11.9% from the prior year, giving good visibility into near-term orders. Still, the company’s total backlog edged down 1.1% compared to last year. The company paid $44 million in dividends, and repurchased $50 million of shares.

Product Families in Focus

The Freight segment centers on diesel-electric locomotives, digital intelligence products for fleet management, railway components such as brakes and couplers, and aftermarket parts services. Transit’s offerings encompass OEM systems for urban and suburban passenger rail, as well as a broad line of replacement parts and service support.

Looking Ahead: Guidance and Key Trends

Management raised its guidance for both adjusted earnings per share and revenue for fiscal 2025. Adjusted EPS is now expected in the range of $8.55 to $9.15, about $0.20 higher at the midpoint. Full-year revenue guidance was also lifted, now expected between $10.925 billion and $11.225 billion, up $200 million. These changes reflect performance so far this year, the benefit of recent acquisitions, and efforts in cost control and mix management.

The company reiterated its target for operating cash flow conversion (non-GAAP) to exceed 90% for the full year, but has only achieved about half of that in the first half. Investors are likely to watch supply chain trends, order backlogs, and the company’s progress in converting earnings to cash through the latter part of 2025.

The quarterly dividend was unchanged.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Westinghouse Air Brake Technologies. The Motley Fool has a disclosure policy.