Wabtec’s earnings release is generally not helpful for understanding the quarter. For example, the topline is not particularly helpful without the backlog numbers. How gross margin increased on negative mix and a sales decline is also unclear – were accruals reversed, pre-production costs capitalized, unsustainable inventory builds that lowered unit costs, or the like at play? Last quarter, traders were crushed by relying on the initial release, and this release similarly lacks critical data.
One item of note, however, is that with year-on-year declines in sales and net income, Wabtec is no longer a growth company and may fail to meet the criteria for some growth funds. This is a key step in the growth to value transition we continue to anticipate for WAB shares. Growth investors are unlikely to rely on financial engineering like debt funded buybacks in establishing investment criteria. If that take is right, we would look for growth holders to have shares on offer following today’s sales miss.
Unfortunately, we won’t be able to understand WAB’s results without the rapid-fire earnings call disclosures and the 10-Q.
