WAB Q3 Deep Dive: International Orders and Tariff Pressures Shape Outlook

Rail equipment company Westinghouse Air Brake Technologies (NYSE:WAB) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.4% year on year to $2.89 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $11.08 billion at the midpoint. Its non-GAAP profit of $2.32 per share was 2% above analysts’ consensus estimates.

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StockStory’s Take

Westinghouse Air Brake Technologies’ third quarter results for 2025 met Wall Street’s revenue expectations, but the market responded negatively. Management attributed performance to robust growth in both Freight and Transit segments, the integration of Inspection Technologies, and a record-high backlog. CEO Rafael Ottoni Santana highlighted strong international demand, particularly in Asia and Kazakhstan, and acknowledged ongoing tariff-related cost pressures. CFO John A. Olin also noted that operating margins benefited from cost recovery and integration initiatives, but were partially offset by unfavorable service mix and higher material costs.

Looking ahead, management’s guidance is underpinned by expectations of continued strong demand in international markets, further integration benefits from recent acquisitions, and ongoing efficiency initiatives. Santana emphasized the company’s confidence in its pipeline and backlog to drive profitable growth, but cautioned that tariffs and a volatile economic landscape remain headwinds. Olin added that further margin expansion is targeted through portfolio optimization and disciplined engineering investments, stating, “We are committed to allocating engineering resources toward existing business opportunities with high returns.”

Key Insights from Management’s Remarks

Management identified international demand, portfolio optimization, and digital expansion as key drivers of the quarter’s results while cautioning that tariffs and service mix presented ongoing challenges.

• International demand acceleration: The company secured a $4.2 billion order with Kazakhstan’s National Railway, described by Santana as the largest single rail order in history, which supports robust growth in locomotive and service backlogs across Asia, CIS, and Brazil.
• Inspection Technologies integration: The acquisition of Inspection Technologies contributed higher gross margins and operational synergies, with Olin noting early signs of accretive margin and EPS impact after one quarter of ownership.
• Service business headwinds: Services revenue declined due to planned lower modernization deliveries, a dynamic that management expects to persist in the near term, partially offset by growth in new locomotive deliveries.
• Tariff and material cost pressures: Olin detailed a four-pronged mitigation strategy—seeking tariff exemptions, optimizing supply chain sourcing, cost-sharing with customers, and broad cost controls—but warned that the largest gross and net tariff impacts are likely still ahead.
• Transit margin improvement: The Transit segment’s operating margins expanded due to operational streamlining and portfolio exits from low-margin businesses, with management targeting further improvement through ongoing integration and strategic acquisitions.

Drivers of Future Performance

Wabtec’s forward guidance is driven by international order momentum, ongoing cost initiatives, and the need to manage tariff risks and service mix.

• Global backlog supports growth: Management believes the record backlog, especially after the Kazakhstan contract, provides visibility for sustained revenue growth, with international markets like Asia, CIS, and Brazil expected to outpace North America in the coming year.
• Portfolio optimization and M&A: Ongoing integration of Inspection Technologies and planned acquisitions (Frauzer, Delner) are expected to be accretive to margins and earnings as cross-selling and cost synergies develop, although these deals are not yet reflected in official guidance.
• Tariff and service mix risks: Olin cautioned that tariff-related cost pressures will persist for the next few quarters, with mitigation efforts ongoing, while the revenue mix shift from modernization services to new equipment could create margin variability.

Catalysts in Upcoming Quarters

Over the next few quarters, our analysts will watch (1) the pace at which international orders, especially the Kazakhstan contract, begin to convert to revenue, (2) the integration progress and margin impact from recent and pending acquisitions, and (3) the company’s ability to mitigate ongoing tariff and material cost pressures. We will also track whether modernization services rebound and how the mix shift affects overall profitability.

Wabtec currently trades at $193.10, down from $198.02 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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