Executive Summary / Key Takeaways

• Strategic Transformation and Global Leadership: Westinghouse Air Brake Technologies Corporation (WAB) is solidifying its position as a global leader in rail and transit solutions, leveraging a rich history of innovation and strategic acquisitions to enhance safety, productivity, and cost efficiency for its customers worldwide.
• Robust Financial Performance and Outlook: WAB delivered a strong third quarter 2025, with sales up 8.4% to $2.89 billion and adjusted EPS increasing 16% to $2.32. The company raised its full-year 2025 adjusted EPS guidance to $8.85-$9.05, reflecting confidence in its operational execution and strategic initiatives.
• Record Backlog and International Growth: The company's 12-month backlog reached $8.3 billion, up 8.4%, while the multi-year backlog hit an all-time high of $20.91 billion, driven by significant international orders, including a landmark $4.2 billion agreement with Kazakhstan's National Railway.
• Technological Edge and Efficiency Drives: WAB's core competitive advantage stems from its differentiated technologies, such as advanced braking systems, Positive Train Control (PTC), and the upcoming Evolution (EVO) platform, which promises up to 7% fuel efficiency. Internal initiatives like "Integration 3.0" aim for $100-$125 million in additional run-rate savings by 2028.
• Strategic Acquisitions Fueling Digital and Transit Expansion: Recent investments totaling $3.5 billion in Inspection Technologies, Frauscher Sensor Technology, and Dellner Couplers are strategically expanding WAB's digital intelligence and transit capabilities, expected to deliver accretive growth and significant synergies.

A Century of Innovation: Powering Global Rail and Transit

Westinghouse Air Brake Technologies Corporation, founded in 1869, has long been a cornerstone of the global rail and transit industries. The company's enduring strategy centers on providing technology-based locomotives, equipment, systems, and services designed to enhance safety, improve productivity, and reduce maintenance costs for its diverse customer base. This foundational approach, honed over more than a century, has positioned WAB as a critical partner in the evolution of freight and passenger transportation worldwide. Approximately half of WAB's net sales in the first nine months of 2025 originated from customers outside the United States, underscoring its expansive global footprint.

WAB's competitive standing is built on a legacy of reliability and specialized expertise, particularly in its core offerings. The company's proprietary braking technology, for instance, translates into tangible benefits for customers, offering enhanced safety and reliability that often lead to superior margins through strong pricing power and recurring revenue from maintenance services. This advantage helps WAB differentiate itself against competitors like Siemens Mobility (SIEGY), which focuses heavily on digital integration, and Knorr-Bremse, a specialist in braking systems. WAB's comprehensive refurbishment capabilities also provide notable flexibility for customers seeking cost-effective upgrades, fostering stronger loyalty and recurring revenue streams.

A key technological differentiator for WAB is its suite of digital solutions, including Positive Train Control (PTC) equipment, advanced automation, and digital mining products. The company is actively developing its next-generation Evolution (EVO) platform for locomotives, which is expected to deliver up to 7% in fuel efficiency improvements. This innovation is currently undergoing testing and is anticipated to be fully commercialized by the end of 2026, with its full impact realized by 2027. Digital tools like Trip Optimizer and Zero to Zero air brake control are also gaining traction, particularly with the support of new leadership at the Federal Railroad Administration (FRA) focused on advancing rail safety and innovation. These advancements are designed to enhance customers' productivity, capacity utilization, and safety, creating a compelling value proposition that underpins WAB's "pricing for value" strategy. The company aims to increase its digital recurring revenues to 50% or higher, up from the current 30% range, by building on products like Movement Planner and automation capabilities that drive efficiency and lower operational costs for railroads.

The competitive landscape for WAB includes major global players such as Siemens Mobility, Alstom (ALSMY), and Knorr-Bremse. Siemens Mobility, a leader in integrated rail solutions, often leads in innovation speed, particularly with its advanced digital integration capabilities. Alstom, specializing in high-speed and sustainable rail, excels in full-system integration. Knorr-Bremse, a braking systems specialist, focuses on technological advancements for braking efficiency. WAB's strength lies in its operational execution and comprehensive service portfolios, which can lead to greater efficiency in cost-sensitive markets and stronger cash flow generation through recurring revenue streams. While WAB may lag in certain pure innovation-driven areas compared to some rivals, its established distribution networks, particularly in North America, provide robust market access. The North American fleet, with over 25% of locomotives being more than 20 years old and over 25% still operating with less efficient DC technology, presents a significant opportunity for WAB's modernization and new locomotive offerings.

Strategic Initiatives and Transformative Growth

WAB's strategic journey has been marked by continuous efforts to optimize its portfolio and operational efficiency. The company successfully completed its "Integration 2.0" restructuring program, achieving $87 million in run-rate savings by the end of 2024, with a target of $97 million by the end of 2025. This initiative laid the groundwork for "Integration 3.0," a new multi-year program focused on consolidating WAB's footprint, reducing complexity, and streamlining operations. Integration 3.0 is expected to generate an additional $100 million to $125 million in run-rate savings by 2028, with approximately $24 million in restructuring charges recorded as of September 30, 2025.

Complementing these internal efficiency drives, WAB has actively pursued "Portfolio Optimization," exiting lower-margin, non-strategic product lines that represented about $100 million in 2024 sales. This disciplined approach aims to improve focus and profitability while reducing manufacturing complexity.

The company's recent M&A activity underscores its commitment to strategic expansion and value creation. Over a six-month period, WAB committed $3.5 billion to acquire three high-quality businesses:

• Evident's Inspection Technologies division: Acquired on July 1, 2025, for approximately $1.79 billion, this acquisition significantly expands WAB's Digital Intelligence capabilities in advanced automated inspection, data acquisition, and analytics. It is expected to be accretive to margins and slightly accretive to EPS in its first year of ownership.
• Frauscher Sensor Technology Group GmbH: A definitive agreement was announced on July 7, 2025, to acquire Frauscher for approximately $675 million. As a global leader in train detection and wayside object control, this acquisition will strengthen WAB's railway signaling technologies and is expected to close by the end of 2025.
• Dellner Couplers: An agreement to acquire Dellner Couplers for approximately $890 million was announced on March 18, 2025. Dellner, a leader in safety-critical train connection systems for passenger rail, will bolster WAB's core transit systems portfolio, with the closing anticipated in the first half of 2026.

These acquisitions are collectively projected to generate first-year annualized revenues of $850 million, with an expected EBITDA of $217 million (a 25.5% EBITDA margin), and contribute $60 million in run-rate synergies over the next three years. This strategic fit is expected to make WAB "grow faster and more profitably," enhancing its resilience.

Financial Performance and Outlook

WAB delivered a strong financial performance in the third quarter of 2025, building on consistent momentum throughout the year. Total net sales for the three months ended September 30, 2025, increased by 8.4% to $2.89 billion, compared to $2.66 billion in the prior year period. For the nine months ended September 30, 2025, total net sales grew 5.1% to $8.20 billion, up from $7.80 billion in the same period of 2024. This growth was driven by both the Freight and Transit segments, with acquisitions contributing $134 million in Q3 2025 and $184 million in the first nine months of 2025, primarily from Inspection Technologies.

Gross profit for Q3 2025 was $1.002 billion, resulting in a gross margin of 34.7%, an improvement of 1.7 percentage points from Q3 2024. For the nine months ended September 30, 2025, gross profit reached $2.84 billion, with a gross margin of 34.6%, up from 32.9% in the prior year. This margin expansion is attributed to strong productivity, cost management, Integration 2.0 and 3.0 savings, and the exit of low-margin businesses through Portfolio Optimization. However, unfavorable mix within the Freight Segment and higher raw material costs due to tariffs partially offset these gains. Operating income for Q3 2025 was $491 million, up from $433 million in Q3 2024, yielding an operating margin of 17.0%. For the nine months, operating income was $1.437 billion, up from $1.275 billion, with an operating margin of 17.5%.

Net income attributable to Wabtec shareholders for Q3 2025 was $310 million, or $1.81 per diluted share, an 11% increase year-over-year. Adjusted earnings per diluted share for the quarter were $2.32, up 16%. For the nine months ended September 30, 2025, net income attributable to Wabtec shareholders was $968 million, or $5.64 per diluted share, compared to $844 million, or $4.80 per diluted share, in the prior year.

Cash flow from operations in the first nine months of 2025 was $767 million, lower than the $1.111 billion in the same period of 2024, primarily due to increased working capital driven by higher sales, timing of customer collections, and increased inventory costs from tariffs. Despite this, WAB's liquidity remains strong, with $2.75 billion in total available liquidity and a net debt leverage ratio of 2.0x at the end of Q3 2025. The company expects this ratio to remain within its target range of 2.0x to 2.5x after funding the upcoming Dellner and Frauscher acquisitions.

WAB also returned value to shareholders through $148 million in stock repurchases and $130 million in dividends during the first nine months of 2025.

Looking ahead, WAB has raised its full-year 2025 adjusted EPS guidance to a range of $8.85 to $9.05, representing an 18% increase at the midpoint. The company expects 2025 sales to be approximately $11.1 billion at the midpoint, up 6.5% from last year, and anticipates greater than 90% cash conversion for the full year. Management expects a strong fourth quarter, with revenue growth implied at 11.25% and EPS growth at 24%, driven by significant new locomotive deliveries offsetting lower modernization volumes. The company also provided new five-year long-term guidance through 2029, targeting mid-single-digit organic top-line growth, over 350 basis points of margin expansion, double-digit EPS growth, and greater than 90% cash conversion. This outlook is supported by a strong 12-month backlog of $8.3 billion and an all-time high multi-year backlog, providing robust visibility into 2026 and beyond.

Competitive Positioning and Market Dynamics

WAB maintains a strong competitive position in the global rail and transit industry, leveraging its extensive installed base and technological leadership. The company's focus on operational reliability and comprehensive service offerings provides a distinct advantage, particularly in freight applications where its braking and coupling systems deliver materially higher reliability in heavy-load scenarios. This enhances operational effectiveness and supports stronger customer retention through bundled solutions.

In contrast, competitors like Siemens Mobility and Alstom often lead in broader digital integration and electrification, respectively. While WAB's innovation speed in certain cutting-edge digital rail systems may lag, its strategic acquisitions, such as Inspection Technologies, are rapidly expanding its digital intelligence capabilities. The company's expansion of its Railcar telematics business into the European market, from 1.6 million to 5.2 million railcars worldwide, represents a multi-billion dollar opportunity, showcasing its ability to scale proven technology globally.

WAB's international markets, particularly in Asia, India, Brazil, and CIS, are experiencing strong growth driven by significant infrastructure investments and fleet expansion. This international momentum is outpacing North America, where the railcar build forecast for 2025 has been reduced by 34% from 2024. However, the North American market still presents substantial opportunities due to an aging locomotive fleet, with over 25% of the active fleet being more than 20 years old and a similar percentage still using less efficient DC technology. Modernizing these units to AC and upgrading control systems are critical levers for Class 1 railroads to improve operating ratios, asset productivity, and reliability while reducing maintenance costs.

The company's strategic partnerships, such as the landmark $4.2 billion agreement with Kazakhstan Temir Zholy for 300 locomotives and long-term service, demonstrate its ability to secure large, multi-year contracts that provide significant revenue coverage and foster long-term relationships. These agreements often include opportunities to integrate digital products like PTC and advanced automation solutions, further enhancing WAB's value proposition.

Risks and Challenges

Despite its strong position, WAB operates in a dynamic environment with several inherent risks. Ongoing macroeconomic volatility, including supply chain disruptions, labor availability, broad-based inflation, and regional conflicts, continues to impact sales channels, manufacturing operations, and costs. The company acknowledges that the full impact of these factors is difficult to predict.

Tariffs represent another significant challenge. Increased tariff costs unfavorably impacted cash from operations in the first nine months of 2025. While mitigation efforts, including exemptions, alternative sourcing, cost-sharing with customers, and pricing actions, are in place, management believes the largest gross or net impact of tariffs is still ahead in the next couple of quarters. However, WAB does not expect tariffs to materially impact its 2025 earnings, and its Integration 3.0 strategy remains unaffected.

Legal proceedings, such as the antitrust claims brought by Progress Rail (though dismissed in June 2025), and a $58 million claim against its subsidiary Xorail, highlight the litigation risks inherent in the industry. While management believes no current litigation will have a material adverse effect, these cases can consume resources and introduce uncertainty.

Conclusion

Westinghouse Air Brake Technologies Corporation is executing a compelling investment thesis centered on technological leadership, operational excellence, and strategic expansion in a growing global rail and transit market. The company's strong third-quarter 2025 results, characterized by robust sales and adjusted EPS growth, coupled with a record backlog, underscore its current momentum. WAB's commitment to innovation, exemplified by its EVO platform and expanding digital intelligence offerings, provides a durable competitive moat, enabling it to deliver quantifiable benefits to customers and drive sustained profitability.

The strategic acquisitions of Inspection Technologies, Frauscher, and Dellner are poised to accelerate growth and margin expansion, particularly in the high-margin digital and transit segments. While macroeconomic volatility and tariff pressures present ongoing challenges, WAB's proactive mitigation strategies and disciplined cost management, including the ambitious Integration 3.0 initiative, are designed to ensure continued financial resilience. With a clear long-term guidance targeting mid-single-digit organic growth, significant margin expansion, and double-digit EPS growth through 2029, WAB is well-positioned to capitalize on global infrastructure investments, an aging North American fleet, and increasing demand for efficient and safe transportation solutions, thereby maximizing shareholder returns.