(The following story by Don Hammonds appeared on the Pittsburgh Post-Gazette website on February 4, 2010.)
PITTSBURGH, Pa. — Wabtec Corp., a Wilmerding company that makes products for the railroad and transit industries, has had a pretty good run on the stock market despite the turmoil of recent years, ranking as one of only two of the 1,900 companies listed on the New York Stock Exchange with an uninterrupted nine-year streak of increasing year-end stock prices.
“We actually were a bit surprised about that,” said Albert J. Neupaver, Wabtec’s president and CEO. He found out after the holidays when chief financial officer Alvaro Garcia-Tunon pointed out the accomplishment.
The year-end stock price for Wabtec in 2000 was $11.54 a share. By the end of last year, the price was up to $40.84. Wabtec’s shares Wednesday closed at 38.03, down 60 cents on the day.
According to New York Stock Exchange officials, who did the calculations, the only other company that can make the same claim is ITT Educational Services Inc., a company that operates postsecondary technology schools, including two in the Pittsburgh area.
Wabtec was founded in 1869 by inventor and entrepreneur George Westinghouse as Westinghouse Air Brake Company in a building located in Pittsburgh’s Strip District.
The firm’s main competitor for a number of different product lines is New York Air Brake, based in Watertown, N.Y., a company owned by a German company, Knorr-Bremse.
Prior to the recession, the U.S. rail industry was growing as the economy prospered. Many companies were shipping more goods, and with that economic growth, came demand for both maintaining existing equipment and purchasing new – all of which helped bolster Wabtec’s position in the industry.
Over the years, Wabtec has managed to build steady stock price improvements through a combination of keeping costs down, investing in innovation and using acquisitions to diversify.
“They’ve continued to go after cost structure, generating lots of cash flow, and they’ve recognized that they need diversity, so there’s lots of diversification in their company now,” said James Lucas, managing director of industrials at Philadelphia-based brokerage Janney Montgomery Scott.
“Their business is now half [original equipment manufacturer] and one half aftermarket components; one half freight and one half transit; two thirds domestic and one third international … and so on.”
Since Mr. Neupaver came to the company in 2006, he and his management team have been focused on pursuing global and market expansion, and emphasizing aftermarket products and services, new products and technologies.
Global expansion has brought, for example, a new service center in Brazil and an expanded presence in Australia. In addition, Wabtec has obtained 500 patents in the past three years, and now has more than 600 domestic patents and around 1,500 patents worldwide.
As a measure of the ongoing changes, consider: When the company made its initial public stock offering in 1995, it had sales of $350 million and 2,400 employees worldwide, including 300 locally. Today, Wabtec is a $1.5 billion business with more than 5,000 employees around the world, including almost 400 in the Pittsburgh area. The company has operations in 16 countries, including three local plants that ship products to more than 100 countries.
A portion of that growth has come through identifying and buying other businesses that seemed to fit well with Wabtec’s core operation. Since 2006, the company has made about $600 million worth in acquisitions.
Most recently, it acquired Unifin International from Kansas-based Koch Industries Inc. for $93 million in October 2009. Unifin, which designs and makes cooling systems and related components for the power generation industry, was a good fit, Wabtec officials said, because it blends well with Wabtec’s mix of technology-based products and services for the rail industry.
Company officials also credit internal programs focusing on cost reduction, freeing up cash and, especially promoting lean manufacturing techniques. “Rather than producing as many products as you can make in a day, instead you make the number of products that you need to make that day to satisfy customers’ demands,” said Tim Wesley, Wabtec’s vice president for investor relations.
Over the last five years, officials said operating profit margins have increased from 9.8 percent of sales to 13.3 percent; on-time delivery is up 7 percent; and productivity is up 8 percent. Wabtec reports sales per square foot of manufacturing space – a measure of manufacturing productivity and efficiency – has grown 16 percent.
Now, like many companies in the transportation industry, Wabtec is looking to the government’s economic stimulus program to produce more work. “They earmarked about $20 billion of the stimulus money to transit. Where we see an immediate impact is in the orders of new locomotives, and in the components that we supply for both locomotives and for an increasing number of buses,” Mr. Neupaver said.
“Any amount of stimulus money that goes into the transit market helps Wabtec. We are a large supplier into that arena, and as business improves, we expect to get the fruits of stimulus money over time,” he added.
Mr. Neupaver is particularly optimistic about finding opportunities in high-speed rail. Western Pennsylvania is set to get $750,000 toward a $1.5 million study of possible service improvements between Pittsburgh and Harrisburg.
If local municipalities get some of the money and eventually become part of a route, Wabtec could potentially benefit if those municipalities decide to buy some equipment to be used for the route.
“We have some products that are used on high-speed rail vehicles such as brake shoes, brake pads and other things,” Mr. Wesley said. “We also make a locomotive that can go about 110 miles an hour on track built to handle that speed. These are used for what is beginning to be known as ‘higher speed’ rail systems that aren’t as fast as what you have in Europe, but still go 80 to 90 miles per hour.”
Mr. Lucas, at Janney, Montgomery Scott, agreed that there is opportunity for growth with the high-speed rail initiatives.
“Now that you are seeing areas like Utah, New Mexico, etc., getting into region-to-region rail travel, cities continuing to connect with rail travel is a plus for Wabtec,” he said. “Wabtec won’t necessarily benefit at the start of high-speed rail construction, but when the rail goes down, you need cars to run on it, and Wabtec has lots of products that will be needed like locomotives, components, and other things.”