Wabtec sees a future producing battery electric locomotives

Fourth-quarter net income slips 35%

Joanna Marsh

4 years ago

A photograph of a train locomotive crossing over a bridge.

Wabtec (NYSE: WAB) could develop more battery electric locomotives in the future as prospective buyers eye ways to improve fuel efficiency, executives of the rail technology provider said during the company’s fourth-quarter earnings call on Thursday.

BNSF (NYSE: BRK) is conducting advanced tests on what Wabtec calls “the world’s first battery electric locomotive,” which the Pittsburgh-headquartered rail technology provider has dubbed FLXdrive. The heavy-haul locomotive could potentially reduce fuel consumption by 10% to 30%, and the technology is attracting interest from customers in North America and internationally, according to Wabtec President and CEO Rafael Santana.

Sales of the battery electric locomotive wouldn’t occur immediately. Proposals are out but there have not been any sales in 2021 or 2022 as of yet, Santana said.

“Fuel is one of the biggest costs for our customers. I would say they are heavily focused on driving fuel efficiency across their operations,” Santana told investors and analysts during Thursday’s earnings call. “This, combined with the growing focus on ESG [environmental, social and governance] and the need for decarbonization, I think positions the FLXdrive as a unique product to really address the challenges.”

The prospect of producing more battery electric locomotives comes as Wabtec experienced a “very significant drop” in locomotive production in the fourth quarter of 2020.

The company reported net income of $87.9 million, or 46 cents per diluted share, in the fourth quarter of 2020, compared with $135.7 million, or 71 cents per diluted share, in the fourth quarter of 2019.

“As we go into ’21, we have about a 35% reduction in locomotive volumes, which means no deliveries for North America and that’s the first time it happens in decades,” Santana said. That contributed to Wabtec’s decision to undertake significant restructuring at several U.S. facilities.

Wabtec also reduced employee headcount across its divisions by 12% in 2020, and it reduced its operational footprint by 10%.

As 2021 progresses, the company said Wabtec and its customers expect an “uneven yet sequential recovery” as the global economy emerges from the COVID-19 pandemic. Wabtec’s technological footprint has expanded in key regions such as the Americas, Russia, the Commonwealth of Independent States and India, and it secured a “strategic” international locomotive order in the fourth quarter of 2020.

“Demand for reliability and productivity will only accelerate as we continue to differentiate Wabtec in the market. Quarter-to-date, we closed a significant multiyear order for modernizations and long-term service agreements” for modernizations, overhauls and parts services, Santana said.

Wabtec is seeking to increase global interest for its positive train control (PTC) offerings, and the company said it has contracts in 2021 to install upgrades to Wabtec’s Trip Optimizer systems.

The ability to utilize PTC to enable autonomous trains is within reach, and technological products are available to make that leap although there might be some differences with how the Class I railroads would implement that next stage, according to Santana.

“I don’t think the technology is the bottleneck,” Santana said.

FInancial results for the fourth quarter of 2020

Fourth-quarter net profit slipped 35% as lower operating expenses weren’t enough to offset a decline in sales and gross profit.

Net sales were $2 billion in the fourth quarter of 2020, compared with $2.37 billion in the prior year amid lower sales in Wabtec’s freight equipment, components, digital electronics and transit aftermarket segments. Gross profit was $505.5 million, compared with $674.9 million in the fourth quarter of 2019.

Operating expenses were $344.4 million in the fourth quarter of 2020, compared with $448.8 million year-over-year.