To begin, WAB is no longer just Westinghouse Air Brake. While our backs were turned WAB changed its official name to Wabtec and completed their merger with the former MotivePower Industries (NYSE: MPO). There was an estimated $20 mm of pretax savings in 2000 through reduced cost of sales and reduced selling, general and administrative expenses. Forward savings are closer to $25 mm. The merger and restructuring plan involves the elimination of duplicate facilities and excess capacity, operational realignment and related workforce reductions, and the evaluation of certain assets. Charges to complete the merger and restructuring plan are expected to add up to $84 mm. Due to an acceleration and refinement of the plan approximately $50 mm of it was charged to 1999 and $29 mm in 2000. WAB says the remaining charge of $5 mm will be taken in 2001.The merged product mix generates about $1 bn in sales, 75% of which is from freight-related products and the rest from the transit arena. According to the 10-K for 2000, "Sales volumes within the Freight Group reflect a softening OEM [original equipment manufacturing] market for freight cars, with 55,821 freight cars delivered in 2000 compared to 74,223 in 1999. Partially offsetting these decreases were increases in Transit Group sales, due to increased shipments under the MTA contract. The Company estimates the OEM freight car and locomotive industries will deliver 45,000 freight cars and 1,200 locomotives, respectively, in 2001."More recently, WAB announced on 4/3 that it had reduced debt, net of cash and equivalents, by about $30 million in the first quarter of 2001. In addition, WAB said it expects first quarter operating earnings, which will be reported Thursday, April 19, to be similar to its results in the fourth quarter of 2000, when the company reported operating earnings of 25 cents per diluted share.Two days later WAB's MotivePower subsidiary announced that it has signed an $80 mm contract to build 26 new, high-efficiency locomotives for Metra, the regional commuter railroad that serves Chicago. The aerodynamically styled locomotives will be Metra's first new units in nearly a decade and prototype delivery is scheduled for late 2002. Deliveries are expected to start in the first quarter of 2003 and finish in the first quarter of 2004.Actual quarterly earnings lagged estimates from 4Q99 through 3Q00, but the tables were turned the corner in the September quarter. Current 2001 estimates call for 10% better earnings YTY and 22% a year out. With a forward PE of 8.8 and estimated 3-5 year growth of 12.5%, some could argue this PEG ratio of 0.70 warrants further attention.Let's watch.Roy
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