WAB Q2 Deep Dive: Guidance Raised Amid Locomotive Shipment Delays and M&A Activity

Rail equipment company Westinghouse Air Brake Technologies (NYSE:WAB) fell short of the market’s revenue expectations in Q2 CY2025 as sales rose 2.3% year on year to $2.71 billion. On the other hand, the company’s full-year revenue guidance of $11.08 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $2.27 per share was 4.1% above analysts’ consensus estimates.

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StockStory’s Take

Westinghouse Air Brake Technologies’ second quarter results fell short of Wall Street’s revenue expectations, with management attributing the miss to a supply part issue that delayed locomotive shipments. CEO Rafael Santana explained, “Q2 revenues were adversely impacted due to a supply part issue that we experienced during the quarter. This delayed shipment of locomotives to our customers.” Despite these headwinds, operating margins improved, aided by a favorable product mix and cost management. Management acknowledged the challenges but emphasized that the supply issue has been resolved and expects to catch up on delayed deliveries by year-end.

Management’s updated full-year outlook is driven by anticipated acceleration in locomotive deliveries, the integration of recently acquired businesses, and a robust backlog. Santana emphasized, “We are entering the second half with strong momentum reflected in our organic revenue forecast, a healthy 12-month backlog and continued margin expansion.” The company also factored in revenue from its Inspection Technologies acquisition and expects further growth from additional pending deals. Management remains cautious regarding the macroeconomic and geopolitical environment but believes that disciplined cost actions and portfolio enhancements will position the company for sustained profitable growth.

Key Insights from Management’s Remarks

Management attributed the revenue shortfall to delayed locomotive shipments but highlighted progress in margin expansion, cost controls, and strategic acquisitions as factors supporting both the current quarter and forward-looking guidance.

• Locomotive shipment delays: A supply part issue shifted roughly $60 million of locomotive revenue out of the quarter, impacting reported sales but expected to be recovered in future quarters.
• Margin expansion on mix: Operating and gross margins improved, driven by a higher mix of services and prudent cost management, despite lower equipment sales.
• Acquisitions reshape portfolio: The integration of the Inspection Technologies business, along with pending Frauscher Sensor Technology and DeLiner Couplers deals, is expected to expand Wabtec’s addressable market and provide immediate accretive growth.
• Transit segment momentum: The Transit business saw continued sales and margin growth, benefiting from infrastructure investment, backlog strength, and ongoing integration and optimization initiatives.
• Aftermarket and digital growth focus: Management sees opportunities in digital solutions and the aftermarket segment, with new offerings in railcar telematics and expanded international reach contributing to future growth.

Drivers of Future Performance

Wabtec’s outlook is shaped by delivery recovery, contributions from recent acquisitions, and persistent economic uncertainty, with management emphasizing disciplined execution to support growth and margins.

• Locomotive delivery rebound: Management expects a catch-up in new locomotive shipments in the second half of the year, with organic revenue growth accelerating as supply issues are resolved.
• M&A integration and synergy: The addition of Inspection Technologies and anticipated contributions from Frauscher and DeLiner are projected to drive incremental revenue, margin expansion, and synergies, especially in digital and sensor markets.
• Macro and regulatory headwinds: Management remains cautious about global economic volatility and shifting tariffs, noting that ongoing cost and pricing actions are intended to mitigate these risks, though some uncertainty remains around future regulatory developments and customer capital spending.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace at which delayed locomotive shipments convert into recognized revenue, (2) integration progress and financial contributions from Inspection Technologies and pending acquisitions, and (3) margin trends as product mix shifts and cost actions are tested amid ongoing macroeconomic uncertainty. Execution in digital and aftermarket growth areas will also be closely watched.

Wabtec currently trades at $200, down from $214.46 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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