Dear fellow shareholders,
2022 was a year of growth and transformation at Wabtec. We continue to drive long-term profitable growth through margin expansion and strong cash flow generation, even with near-term uncertainty and volatility in the global economy.
Despite several headwinds, including geopolitical instability, supply chain disruptions, increased commodity costs, and inflation, our resilient teams worked together to find a path to deliver on our commitments. They went above and beyond in our manufacturing facilities and service shops to execute for our customers. They developed transformative technologies and digital solutions that will revolutionize the industry for years to come. And they collaborated across borders and boundaries to work as One Wabtec to achieve our shared Vision – to revolutionize the way the world moves for future generations.
Looking forward, Wabtec is well-positioned to drive long-term shareholder value.
2022 Financial Performance
The team’s relentless focus on execution, combined with underlying business momentum, enabled Wabtec to realize a year of strong financial performance. Total sales for 2022 were $8.36 billion, with cash flow from operations of $1.04 billion. Cash generation for the year was above 90%, an impressive accomplishment in this dynamic macro environment.
We achieved an adjusted operating margin of 16.2%. Increased sales were driven by strong growth in our Freight business, which, excluding the impacts of foreign currency, was up 10.8%.
We are also on track to deliver $75-90 million in run-rate savings by 2025 as part of our Integration 2.0 effort. In 2022, this focus on lean, continuous improvement drove efforts to consolidate our footprint, streamline manufacturing, and simplify internal systems.
We closed the fourth quarter with total multi-year backlog at $22.4 billion, and a record high 12-month backlog of $6.8 billion. Our debt leverage ratio at the end of the year declined to 2.2 times, and our liquidity is robust at $2.29 billion. Finally, we returned $584 million of capital to shareholders via share repurchases and dividends.
Looking ahead, Wabtec enters 2023 with momentum across the business. We continue to build on our solid foundation and are in a strong position to drive profitable growth, generate cash, and perform for our shareholders, customers, and employees in the short- and long-term.
Delivering on Our Purpose: Revolutionizing the Way the World Moves
Wabtec’s greatest strength has always been our ability to deliver game-changing innovations and solutions to our customers around the world.
In support of the clean energy transition, we’re leading the drive toward a more utilized, efficient, and low-carbon rail network. This includes delivering a rail ecosystem that uses less fuel and generates fewer emissions, utilizing alternate fuel sources for freight locomotives, applying digital technologies to optimize the rail network, modernizing our customer’s existing assets, and continuing to meet the sustainable transportation needs of growing cities around the world through our Shift to Green efforts.
In 2022, we scaled our next-generation FLXdrive™, the world’s first heavy-haul 100-percent battery electric locomotive, with orders across the world, from Rio Tinto, Roy Hill, and Union Pacific (UP). Battery electric technology is a critical step toward a zero-emission locomotive future and the FLXdrive promises to significantly reduce fuel consumption and greenhouse gas (GHG) emissions. The further adoption of our low-emitting USEPA Tier-4 locomotives also continues to help reduce emissions for our customers.
In addition to investing in advanced technologies, we are helping our customers explore low-carbon fuels for their existing assets. Alternative clean energy technologies and the use of alternative fuels like biodiesel, renewable diesel, and hydrogen are critical levers to reduce environmental impact. Biofuels are domestically produced, clean-burning, renewable substitutes for petroleum diesel.
Wabtec’s customers are exploring these solutions to significantly reduce GHG emissions and their impact on the world’s climate. In 2022, Wabtec partnered with UP Railroad and BNSF to use a higher biodiesel blend in their Wabtec locomotives, and UP began testing B20 biodiesel and R80 renewable diesel on trains powered by Wabtec FDL engines operating in California.
Our compelling and comprehensive portfolio of locomotives, mission-critical components, advanced braking systems, Positive Train Control (PTC) systems, and digital solutions also help customers realize the most value from their investment.
Because locomotive fleets globally are rapidly aging, modernizations continue to be a unique solution to revitalize fleets while reducing waste, extending the life of equipment, and increasing fuel efficiency to drive emissions reductions and cost savings for our customers.
Our customers also see the value in modernizations. In March 2022, Wabtec announced a multi-year order from Norfolk Southern to modernize 300+ locomotives as part of the railroad’s ongoing efforts to further improve fuel efficiency and reduce emissions from its fleet. And in July 2022, UP signed a historic deal with Wabtec for 600 locomotive modernizations featuring a suite of digital solutions and innovations. The agreement, worth more than $1 billion, is the largest investment in modernized locomotives in rail industry history, and part of UP’s fleet strategy to move more freight efficiently and sustainably across its service territory.
These deals provide significant benefit to our customers. Modernizations could lead to more than a 15% improvement in fuel efficiency, while providing more than a 40% increase in reliability, an increase in haulage ability greater than 50%, and a reduction in maintenance and repair expenses. They also provide our shareholders with strong visibility and confidence in the underlying strength of our business.
Today, remanufacturing annually brings approximately 333 million pounds of end-of-life material back to global remanufacturing facilities. 79% is reused or remanufactured and 20% is recycled, leaving less than 1% waste. When Wabtec takes apart trains for modernization, 50% of the steel is reused during the remanufacturing process.
Since 2015, Wabtec’s remanufacturing locomotive plants in Pennsylvania, Texas, and Brazil have reused more than 100,000 tons of steel in the remanufacturing process, and in August 2021, these plants delivered their 1,000th remanufactured locomotive.
Leading the Way
For more than 150 years, Wabtec has developed innovations to improve safety and make a positive impact on people and the planet. In 2023, we will continue to drive the future of sustainable transportation by developing and delivering next gen solutions and execute by delivering on time, quality products to our customers.
Our Vision – to revolutionize the way the world moves for future generations – requires agility, ability, and transformative change. This bold aspiration can help to avoid over 300 million tons of carbon dioxide per year, reduce road congestion in our cities, and make transportation significantly safer for everyone.
We will continue to lean into the strong fundamentals of the company to drive long-term profitable growth, margin expansion, and strong cash flow generation. Our global scale, commitment to continuous improvement, and investment in technology will continue to differentiate Wabtec and allow us to deliver for our stockholders, customers, employees, and the world.
Sincerely,
Rafael Santana
President and CEO
Read the original letter here.
