Westinghouse Air Brake Technologies (WAB) Q1 2016 Earnings

posted in: Earnings Call, Notes | 0

Westinghouse Air Brake Technologies (WAB) Chairman Al Neupaver characterized the global economy as sluggish 

“So despite ongoing headwinds in some of our markets and a sluggish global economy, I think we showed once again that the Wabtec business model works.  As we’ve said before, we’re not immune to the challenges facing probably every transportation and industrial company these days. But we do believe our diversified business model gives us the ability to manage through these cycles better than most.”

Focused on reducing their costs

“So even as we work on reducing cost and implementing the principles of our Wabtec performance system, we continue to invest in our strategic growth initiatives.”

Westinghouse Air Brake Technologies (WAB) CEO Ray Betler called out the weakness in their freight rail market customers

“So let’s talk about freight rail and note the freight rail traffic was down about 6% in the first quarter with decreases in commodity carloads, more than offsetting a slight increase in intermodal traffic. The traffic comparisons will start to get easier as we go through the year but that doesn’t change the fact that the markets are very tough right now for our customers.”

They are still not sure how much weakness is recessionary versus secular

“Some of these headwinds could represent secular changes in our markets and some may be recessionary. But either way, we have reacted and will continue to react to these changes. Despite the current challenges, we believe the freight market around the world will grow over time which is why we continue to increase our global footprint and our product offerings beyond our traditional NAFTA market.”

Reducing number of employees

“So we’re well equipped to respond to these market conditions and have gone through these kind of situations before. In this case, we’ve taken the following actions. Thus far we’ve reduced total employment by more than 7% in the last two quarters. We will continue to adjust our headcount as necessary going forward. We’ve stepped up our expense reduction programs both at the corporate level and across the total business units across our worldwide business. And we set more aggressive targets for activities associated with our Wabtec performance system which includes our lean supply management and quality initiatives.”

They believe internal growth is number one capital allocation priority 

“The most profitable way to grow is through internal development and where staying focused on that. Second is acquisitions. Third is the dividend and the share buyback. So I think it’ll be the same priorities. What changes those priorities is the opportunity. We’re opportunistic. You can’t predict acquisitions. So we have to adjust the priorities based on what’s available and we’ll continue to do that. But we’re focused in all those areas in that list of priorities.”