WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP Annual Report - Your Investor's Guide

This investor's guide summarizes WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP's (Wabtec) annual performance. We'll explore how this industrial giant, a key player in the rail industry, performed this past year to help you understand its potential fit for your investment portfolio. This summary cuts through the jargon, focusing on what truly matters for the fiscal year ending December 31, 2025, with comparisons to 2024 and 2023.

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1. Business Overview (What Wabtec Does)

Wabtec operates in two core segments: Freight and Transit. The company provides essential equipment, components, and services for both freight trains, which move goods across continents, and passenger trains, subways, and commuter rail systems that transport people daily. Its global offerings span a wide range of products and services, including locomotive components, digital rail solutions, signaling, and maintenance services.

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2. Financial Performance - Revenue, Profit, and Growth Metrics

Wabtec generates revenue from both product sales (train parts, systems, and digital solutions) and service sales (maintenance, repairs, and long-term support contracts).

Key Financial Highlights for 2025:

• Total Revenue: Wabtec reported robust revenues of approximately $9.5 billion, an impressive 8% increase over $8.8 billion in 2024. Strong organic growth and initial contributions from recent acquisitions drove this increase.
• Net Income: Net income grew to $850 million in 2025 from $780 million in 2024, reflecting effective cost management and higher sales volumes. This translates to earnings per share (EPS) of approximately $4.60.
• Gross Profit Margin: The company maintained a healthy gross profit margin of around 28%, indicating efficient production and service delivery.
• Operating Income: Operating income reached $1.2 billion, demonstrating strong operational efficiency.
• Cost Structure: Key business costs included:
  • Cost of Goods and Services Sold: Approximately $6.8 billion.
  • Selling, General, and Administrative (SG&A) Expenses: Around $1.1 billion, representing about 11.5% of revenue. This reflects ongoing investments in sales, marketing, and administrative functions.
  • Amortization of Intangible Assets: $150 million, primarily related to past acquisitions.

Significant revenue and profit growth, coupled with strategic acquisitions, highlight Wabtec's successful execution of its growth strategy and its ability to capitalize on market opportunities.

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3. Management Discussion and Analysis (MD&A) Highlights

This section offers management's perspective on Wabtec's financial condition and operational results for the fiscal year ending December 31, 2025, highlighting key trends, significant events, and strategic initiatives.

Operational Performance and Strategic Initiatives: Wabtec characterized 2025 by significant strategic expansion and solid operational execution. The company successfully completed several key acquisitions, central to its aggressive growth strategy, technological advancement, and diversification within the rail ecosystem:

• Frauscher Sensor Technology Group GmbH (December 2025): Wabtec acquired Frauscher for approximately $250 million. This significantly strengthens its digital rail solutions, particularly in advanced sensing and monitoring for railway infrastructure and operations, enhancing its ability to offer predictive maintenance and safety systems.
• Inspection Technologies (July 2025): Wabtec acquired Inspection Technologies for around $120 million. This move deepens its expertise in advanced inspection tools, crucial for improving safety, efficiency, and maintenance cycles across rail networks.
• Dellner Couplers (March 2025): Wabtec acquired Dellner Couplers for approximately $180 million. This expands its portfolio of critical train components, specifically couplers that connect train cars, enhancing its global supply chain and product offerings.

These acquisitions are collectively expected to contribute an additional $350-$450 million in annual revenue starting in 2026. This underscores management's commitment to expanding its digital rail footprint, strengthening core product offerings, and achieving global market penetration. This consistent growth strategy also includes previous acquisitions like Lokomotiv Kurastyru Zauzty (LKZ) in Kazakhstan and L.M. Radiator Inc. in 2023.

Wabtec ended 2025 with a record order backlog of approximately $25 billion. This strong indicator of future revenue stability and growth is consistent with the healthy backlog reported in 2024. This substantial pipeline of future projects provides excellent visibility into upcoming business and reflects robust demand for Wabtec's offerings.

Key Factors Affecting Results:

• Major Wins: Wabtec successfully integrated Frauscher, Inspection Technologies, and Dellner Couplers. These were major achievements, expanding the company's product portfolio, technological capabilities, and competitive position in critical areas like digital rail, safety, and core components. The strong financial performance, including 8% revenue growth and increased net income, further highlights effective operational execution and market penetration.
• Potential Challenges: Despite these successes, management navigated several challenges. Integrating multiple acquisitions simultaneously, while beneficial, can be complex, potentially leading to temporary operational disruptions or higher-than-expected integration costs. While Wabtec has a proven track record, this remains an ongoing management focus. Global supply chain disruptions, though easing, continued to pose challenges, impacting material costs and delivery schedules. Additionally, rising raw material and labor costs required diligent cost management and pricing strategies to maintain margins amidst inflationary pressures.

Market Trends and Regulatory Environment: Wabtec's global footprint means several macro trends and regulatory shifts influence its performance. Management actively monitors and addresses these:

• Global Economic Conditions: The health of the global economy directly impacts capital expenditures by rail operators. While some regions show strong growth, others may face headwinds.
• Decarbonization and Sustainability: Increasing pressure for greener transportation solutions drives demand for Wabtec's energy management systems, hybrid locomotives, and other sustainable technologies. This trend provides a significant tailwind for the company.
• Digitalization of Rail: The industry is undergoing a digital transformation, focusing on automation, IoT, and data analytics. Wabtec's investments in digital solutions position it well to benefit from this trend.
• Infrastructure Spending: Government initiatives and stimulus packages focused on upgrading and expanding rail infrastructure globally present significant opportunities for Wabtec.
• Trade Policies and Geopolitics: International trade relations and geopolitical events can impact supply chains, market access, and the cost of doing business in various regions. Wabtec uses foreign exchange hedging to mitigate some of these financial risks.
• Regulatory Standards: Evolving safety, environmental, and operational regulations across different countries require continuous adaptation and investment in compliance.

This section provides a comprehensive overview of the factors management considers critical to understanding the company's performance and strategic direction.

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4. Financial Health - Cash, Debt, and Liquidity

Wabtec maintains a diversified debt structure to fund its operations and strategic growth initiatives.

Key Financial Health Metrics (as of December 31, 2025):

• Cash and Cash Equivalents: The company held approximately $500 million in cash and short-term investments, providing a solid liquidity buffer.
• Total Long-Term Debt: Wabtec's total long-term debt stood at approximately $4.8 billion.
• Senior Notes: Its outstanding Senior Notes include:
  • Wabtec successfully repaid or refinanced the 3.200% notes due in 2025 (approximately $300 million) during the year, demonstrating effective debt management.
  • 3.45% notes due in 2026 (approximately $400 million).
  • 1.25% notes due in 2027 (approximately $500 million).
  • 4.70% notes due in 2028 (approximately $600 million).
  • 4.90% notes due in 2030 (approximately $750 million).
  • 5.611% notes due in 2034 (approximately $800 million).
  • 5.50% notes due in 2035 (approximately $900 million).
• Revolving Credit Facilities: Wabtec maintains access to a $1.5 billion revolving credit facility, with approximately $700 million undrawn at year-end. This provides ample flexibility for working capital needs and future opportunities.
• Secured Term Loans: The company also utilizes secured term loans, totaling about $250 million, providing additional funding capacity.
• Short-term Obligations: Wabtec effectively managed standard accounts payable of $1.2 billion and other accrued liabilities of $800 million.

Wabtec's debt-to-EBITDA ratio remained healthy at approximately 2.5x, indicating manageable leverage. The successful management of the 2025 debt maturity underscores its financial discipline and access to capital markets.

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5. Risk Factors

Investors should consider these potential risks, which could materially affect Wabtec's business, financial condition, and results of operations:

• Debt Management and Interest Rate Fluctuations: While Wabtec's debt is currently manageable, a significant rise in interest rates could increase borrowing costs for refinancing future maturities, potentially impacting profitability. Wabtec actively monitors its debt profile and capital markets.
• Acquisition Integration Risk: Despite a strong track record, integrating new companies—especially those with different cultures or technologies—always carries a risk of unforeseen challenges, delays, or failure to realize expected synergies.
• Foreign Exchange Risk: Significant international operations and recent global acquisitions expose Wabtec to currency fluctuations. The company actively uses foreign exchange forward contracts to hedge against these risks, particularly for major transactions like the Frauscher and Dellner acquisitions, but some exposure remains. A strong U.S. dollar can negatively impact the translation of international earnings.
• Global Economic Downturns: As a global industrial company, Wabtec's performance is tied to the health of the global economy and capital expenditure cycles in the rail industry. Economic slowdowns in key regions could reduce demand for new equipment and services.
• Geopolitical and Regulatory Risks: Operating in diverse countries like the US, Canada, Mexico, Australia, Brazil, India, and Kazakhstan exposes Wabtec to varying economic conditions, trade policies, and geopolitical instability. These factors can impact operations and profitability. Changes in rail safety or environmental regulations could also increase compliance costs.

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6. Competitive Position

Wabtec's strategic acquisitions of Frauscher (digital sensing), Inspection Technologies (safety and maintenance), and Dellner Couplers (core components) directly strengthen its competitive position. By expanding its technological leadership and product breadth, Wabtec aims to:

• Enhance its "Total Solution" Offering: Providing more integrated solutions, from components to digital services, makes it a more indispensable partner to rail operators.
• Increase Market Share: These acquisitions allow the company to capture a larger portion of the rail industry's value chain.
• Drive Innovation: Integrating advanced technologies like Frauscher's sensors positions Wabtec at the forefront of digital rail transformation, offering smart solutions that competitors may struggle to match. This proactive strategy helps Wabtec maintain its leadership against both established industrial competitors and emerging technology players in the rail sector.

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7. Future Outlook

Wabtec's future looks promising, supported by several key factors:

• Robust Order Backlog: The $25 billion backlog provides a strong foundation for revenue in the coming years.
• Synergies from Acquisitions: Recent acquisitions are expected to generate significant revenue and cost synergies, further boosting profitability from 2026 onwards.
• Digital Transformation: Continued investment in digital rail solutions positions Wabtec to capitalize on the industry's shift towards automation, predictive maintenance, and enhanced safety.
• Sustainability Trends: The global push for more sustainable transportation solutions favors rail, creating long-term demand for Wabtec's energy-efficient and environmentally friendly technologies. Management projects continued mid-single-digit revenue growth and expanding margins for 2026, driven by these factors.

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This overview provides a clear picture of Wabtec's strong performance, strategic direction, and financial health for 2025, offering valuable insights for potential investors.