US rail equipment supplier Wabtec reported higher third-quarter revenue and profit and raised its full-year earnings guidance, as backlogs in its freight and transit segments grew. The results point to a recovery in rail equipment utilization in North America, without yet signaling a broad rebound in new-equipment spending.
What Happened
Operating income rose 27% year on year to $625 million, while revenue grew 8% to $3.12 billion and earnings per share climbed 34% to $2.42, the company said.
Wabtec raised its full-year adjusted EPS guidance to a range of $10.85 to $11.05, an increase of about 21% to 23.2%, up from its prior outlook of 18.2% to 21.5%.
By segment, freight revenue rose 6.9%, with digital intelligence revenue up 24.2%; transit revenue increased 11.3% to $883 million. The freight segment's 12-month backlog rose 7.5% to $6.54 billion, while the transit backlog grew 12.2% to $2.45 billion.
The company also booked $633 million in new locomotive and modernization orders from two Class I railroads, which it did not name.
Background
Growth in North American freight traffic this year has prompted Class I railroads to reactivate stored locomotives, driving higher parts orders. However, management said on the earnings call that the volume growth has not yet translated into orders for new locomotives.
The mix suggests current demand is concentrated in maintenance and modernization of existing equipment rather than large-scale investment in new capacity. Part of the company's growth also came from acquisitions, including Frauscher Sensor Technologies and Sweden's Dellner Couplers.
Impact on Shippers
Higher rail equipment utilization generally means rail capacity supply is gradually recovering, which could help keep rail capacity available for the inland leg of US-bound cargo. But the lack of new locomotive orders suggests railroads remain cautious about medium- and long-term capacity expansion, making a sharp capacity-driven rate decline unlikely in the near term.
For sellers shipping to US inland destinations via ocean-truck or ocean-parcel services, the main effect is more predictable transit times on the rail leg rather than meaningful cost relief. Customs clearance is not directly affected, but the reliability of inland transfer connections is worth monitoring.
Recommendations
Shippers should maintain their current stocking pace and avoid adjusting channel strategy based on a single equipment maker's results. For cargo moving to US inland points, confirm the rail connection plan and backup routing for the truck-delivery leg when booking, and build in buffer time to absorb any transit fluctuations from rail capacity allocation.