Apr 23, 2014
Executives
Tim Wesley - VP of Investor Relations Al Neupaver - Chairman and CEO Ray Betler - President and COO Pat Dugan - Chief Financial Officer
Analysts
Scott Group - Wolfe Research Allison Poliniak - Wells Fargo Matt Brooklier - Longbow Research Thom Albrecht - BB&T Justin Long - Stephens Steve Barger - KeyBanc Art Hatfield - Raymond James Liam Burke - Janney Capital Markets Samuel Eisner - Goldman Sachs Greg Halter - Great Lakes Review Scott Blumenthal - Emerald Advisers
Operator
Good day, and welcome to the Wabtec First Quarter 2014 Results Conference Call. All participants will be in listen-only mode.
(Operator Instructions). After today’s presentation, there will be an opportunity to ask questions.
(Operator Instructions). Please note this event is being recorded.
I would now like to turn the conference over to Mr. Tim Wesley, Vice President of Investor Relations.
Please go ahead.
Tim Wesley
Thank you, Andrew. Good morning, everybody.
Welcome to our first quarter earnings call. Let me introduce the Wabtec people who are here with me, Al Neupaver, our Chairman and CEO; Ray Betler, our President and Chief Operating Officer; Pat Dugan our CFO; and our Corporate Controller, John Mastalerz.
And we’ll make our prepared remarks first and then we will be happy to take your questions. And we will certainly make some forward-looking statements during the call.
So we ask that you to please review today’s press release for the appropriate disclaimers. Al?
Al Neupaver
Thanks Tim. Good morning.
We had an excellent operating performance in the first quarter with record sales of $695 million and record earnings of $0.83 per diluted share. Our operating margin continued to expand nicely and was at 17.5%.
Our backlog increased during the quarter and now stands at a record $1.72 billion. The business is performing well; thanks to our diversified business model, our strategic growth initiatives and the power of our Wabtec Performance System.
We’re very optimistic and excited about the long-term opportunities in our freight and transit rail markets. These markets are large, they are global, and they are growing, and we are positioned well to participate in them.
Today we affirmed our 2014 guidance. We expect full year earnings per diluted share to be about $3.45 based on sales growth of about 15% for the year.
This guidance as it did in February, includes the acquisition of Fandstan Electric Group which we now expect will close during the second quarter. Our guidance also assumes the following: Continued modest growth in the global economy; the U.S.
and European transit markets remain stable with the emerging markets driving growth; U.S. freight rail traffic grows modestly with OEM locomotive and freight car builds also growing.
So far this year, rail traffic is up almost 2%.We assume no major changes in foreign exchange rates and that our tax rate will be about 31.5% for the year. As always, we will be disciplined when it comes to controlling cost, we will be focused on generating cash to invest in growth opportunities and ready to respond if market conditions change.
Ray, can you talk a little bit about our current market situation?
Ray Betler
Thank you, Al. One of the reasons we are optimistic about Wabtec’s future is that we are involved in very compelling markets.
These markets as you know are mainly freight and passenger transit. They are large, they are global, and they’re growing.
According to the UNIFE study, worldwide addressable rail supply markets exceed $100 billion, with an annual growth rate of about 3%. Western Europe, Asia-Pacific and NAFTA represent about 75% of that overall market.
Rolling stock is the largest segment and outsourced services is the fastest growing segment and we play in both of these areas. All the markets are focused on improving safety, productivity and efficiency and that’s where Wabtec plays an important role.
The markets are also compelling because inefficient transportation system and a robust infrastructure are essential to effective global economic growth in both developed and also emerging countries. Finally, secular trends are also driving investment.
Areas like environmental, responsibility, urbanization and energy evolution. On the freight side, in NAFTA, traffic is up almost 2% so far this year led by a 4.3% increase in intermodal.
That’s despite all the weather issues that our customers have to deal within the first few months of this year. OEM rolling stock deliveries this year are still expected to be higher in [2000] than they were in 2013.
We expect them to be around 60,000 freight cars this year and around 1,100 locomotives. This compares to 53,000 freight cars and 1,000 locomotives delivered last year.
Globally freight traffic is also growing, although China’s lower growth rate has had some ripple effect in the mining countries like Australia, Brazil and South Africa. As you know, we are focused on increasing our global footprint and also our product offerings where we see opportunities in markets that are larger than our traditional NAFTA market.
For example, the global installed base of locomotives is about 110,000 worldwide with about 35% of that fleet being in Asia-Pacific and only 20% in the U.S. The global installed base of freight cars is about $5.2 million, with 30% in each of the U.S.
and Russian markets and about 20% in Asia-Pacific. On the transit side, stability is still the same in the transit markets both in the U.S.
and abroad. In the U.S., ridership was up about 4% in the fourth quarter and 1% for the year.
In the UK, ridership was up about 2.8% in the most recent quarter. And in Germany, estimates show a slight increase.
In 2013, North American transit car deliveries were about 1,000 and bus deliveries about 4,500 and we expect about the same number of deliveries this year. Transit funding in the U.S.
is also stable, it’s about $10 billion that’s where it’s been the last several years. The current two year transportation bill expires this year and we expect it to be extended because it really doesn’t look like Congress will pass a lower term bill.
So, the level of funding will probably remain about the same. Just as with the freight market, we're focused on global growth in transit also in increasing our product offerings because again the markets outside of NAFTA are larger than our home market.
We estimate that global installed base of transit cars to be about 330,000 with about 55% in Asia-Pacific; 20% in Europe; and only about 5% in NAFTA. And even in these larger more established markets investment remained strong.
For example, there is cases like in Munich where S-Bahn announced doubling of spending this year to modernize their infrastructure and transportation systems. Al?
Al Neupaver
Thanks a lot Ray. As we go forward at Wabtec, we really want to continue to focus on growth and cash generation.
Our priorities for allocating free cash remain the same. First priority is to fund internal growth programs that includes capital expenditures; second priority would be acquisitions; and then thirdly, return money to shareholders through a combination of dividends and stock buybacks.
We had a very small window for buying stock in the first quarter and did repurchase 27,500 shares for about $2 million. So, we have about a $198 million left on our approved $200 million buyback authorization.
We expect to be active during the year. We remain focused on increasing free cash flow by managing cost, driving down working capital, and controlling capital expenditures.
Our growth strategies also remain the same, global and market expansion; aftermarket expansion; new products and technologies; acquisitions. Let’s talk a bit about the progress that we’ve made on these strategies.
In the global and market expansion area, our sales outside of the U.S. during the first quarter were $314 million, that’s 4% higher than last year’s quarter and about 45% of total sales versus if you look back five years ago that number would be about a third.
We continue to expand our capabilities and market presence in various markets around the world. In particular, we have taken advantage of opportunities in Europe, China and South Africa.
The aftermarket expansion strategy: Overall aftermarket sales were $414 million in the quarter. That’s a 16% growth over year ago quarter and it represents 60% of our total sales.
This growth is due in part to acquisitions and internal growth initiatives. We are very focused on expanding our service offerings globally.
As for new products, we continue to have tremendous focus on this area with many internal development projects. To name just a few electronic braking, oil free compressors, locomotive services, and an integrated brake system for the European freight market, and of course, positive train control.
PTC related sales come in at about $235 million during 2013. Based on our first quarter 2014 numbers, we are on track for PTC sales growth of about 10% to 15% this year as we continue to work with the railroads and other industry suppliers to develop an interoperable system.
Recently we announced two contracts, one contract was with the Alaskan Railroad; the other with Sound Transit in Seattle. We expect to announce others as the year goes on.
As you know, the railroads and transit authorities have said that meeting the December 15 PTC deadline is not possible which could lead to an extension of the deadline. We have analyzed this and do not feel that it would have a meaningful impact on our business.
In the area of acquisitions we completed three transactions last year and have already announced one this year and that’s Fandstan Electric which we expect to close in the second quarter, as we work through some final regulatory issues. Let’s talk a little bit about Fandstan Electric, I mentioned this on our last call but it makes highly engineered components, those are pantographs or third rail shoe gears that has excellent IP and strong engineering and technical capabilities.
About 60% of that business is associated with transit and 40% industrial and energy. It meets all of our strategic criteria, new products, no product overlap whatsoever with Wabtec.
It has aftermarket component of about 30%, it has an installed base in more than 100 different countries. It meets global expansion in the sense that it has sales of about 50% in the Continent of Europe, 20% in the UK, 20% in Asia, and 10% in the U.S.
It has a strong management team that will continue with the business. The annual revenues are about $235 million with margins slightly less than our current transit margins.
We see significant opportunities to improve the margins, using our lean and sourcing activities, but this will take time and lots of hard work. In 2014, we expect to see significant sales from Fandstan, but minimal earnings accretion due to integration cost and purchase price accounting charges.
Long-term, we think Fandstan will be an excellent addition to our portfolio. With that I will turn it over to Pat to talk a little bit about our numbers.
Pat Dugan
Thanks Al, good morning everybody and thanks for joining us on the call. Just some highlights from our financial results for Q1.
Our sales for the first quarter were a record $695 million which is 13% higher than last year. Of this increase about three quarters was from organic growth.
Our freight segment sales increased 23%. That increase was due to acquisitions and organic growth from increases in the area of electronics and freight car components.
Transit segment sales increased 3%. For 2014, we expect to see revenues increase in both of our operating segments with freight probably growing at a faster rate.
Our operating income for the quarter was a record $122 million which is about 17.5% of sales. The first quarter operating margin in 2013, a year ago was 16.8% and we finished the full year at 17%.
So we continue to have slight improvement. Our interest expense for the quarter was $4.5 million which is a bit higher than a year ago and that’s due to some increased borrowings related to acquisitions that we completed in 2013.
Our effective tax rate was 31.7% and it was 30% last year. You have to remember that last year in first quarter 2013, we had a one-time tax benefit due to changes in legislation and especially the extension of the R&D tax credit which is a first quarter discrete item.
We expect to see the annual rate for 2014 to be about 31.5%. We could have some variability due to timing of any discrete tax items throughout the quarters in 2014.
In terms of working capital our trade and unbilled receivables were $637 million. Inventories were $420 million and payables were $345 million, the unbilled receivables are related to the long term contracts where we need to hit certain project milestones before we're able to build for the work.
As our businesses become more global and as we expand our sourcing programs into other low cost countries that will affect our working capital requirements. Cash, with $295 million in cash mostly in the U.S., I’m sorry mostly outside of the U.S.
$286 million was in hit at December 31st. When we close Fandstan, we expect to fund the acquisition with both cash and debt, so those numbers will change accordingly.
Our debt at March 31st was $451 million and that’s very similar to year-end. In terms of cash generated from operations were generated $26 million for the quarter and we expect that to continue as the year goes on.
Couple of miscellaneous items just some of the things that we always point out for the call, our depreciation for the quarter was $8.8 million compared to $7.6 million in last year’s quarter that’s higher mostly due to the acquisitions we closed in 2013. So we have a full year as worth of depreciation from those acquisitions that were not in the first quarter of last year.
Amortization expense was $4.7 million compared to $3.6 million in last year’s quarter same reasoning, it’s increased due to the ongoing amortization from last year’s acquisitions. Our CapEx for the quarter was $6.3 million, a year ago it was $6.4 million.
Our expectations for the full year for CapEx to be about $50 million which includes some of the expenditures that will come from the acquisition of Fandstan. For backlog we reached a record multi-year backlog of $1.72 billion, which is about 1.5% higher than at year end December 31st.
You break that down, $1.2 billion for our transit segment and $531 million for our freight segment. Our rolling 12 month backlog which is a subset of the multiyear backlog was $1.1 billion which is about the same as it was at year end.
You break that down transit was $660 million and freight $467 million. Those backlog numbers I’ve just pointed out do not include about $250 million of contract options.
We don't count those in the backlog numbers until the customer exercise with the options. So, with that I'm happy to turn the call back over to Al for his closing comments.
Al Neupaver
Thanks Pat. In summary, we had an excellent performance in the first quarter with record sales and earnings and a record backlog.
As we look forward to 2014, we are anticipating another record year and affirm our EPS guidance of about $3.45 on revenue growth of about 15%. We are pleased with our strategic progress and excited about the long-term growth opportunities we see.
As countries around the world continue to invest in freight, rail and passenger transit infrastructure. We continue to benefit from our diverse business model and the Wabtec Performance System, which provides the tools we need to generate cash and reduce cost.
We have an experienced management team that is poised to take advantage of our growth opportunities and ready to respond to any changes in market conditions. With that, we'd be more than happy to answer your questions.
Operator
We will now begin the question-and-answer session. (Operator Instructions).
The first question comes from Scott Group of Wolfe Research. Please go ahead.
Scott Group - Wolfe Research
Hey, thanks. Good morning, guys.
Al Neupaver
Good morning, Scott.
Scott Group - Wolfe Research
So, first just in terms of the delay in closing the Fandstan acquisition, maybe if you just have any color on what’s going on there? And how does that impact the guidance?
I know no change to the guidance, but Fandstan closing a little bit later. Does that imply some, the rest of the business maybe doing a little bit better than your thought, I just want to understand that?
Al Neupaver
Okay. First question was related to Fandstan in closing of the business.
So, as we have explained, Fandstan is a very global business with businesses in over 100 different countries and some complex business models. And we are going through some anticipated regulatory steps that we need to take in order to be able to close.
So, we are confident that we will be able to work through those and close in the second quarter at this point. Any change to that, obviously we would keep everyone informed.
If, the second question is related to did we actually see the rest of our business perform a little better than expectations? Since we had anticipated, we would have closed the Fandstan business in the first quarter.
The anticipation was that we would not close it until late in the first quarter. However there was impact that we have build into the guidance related to revenues.
And your assumption and your statement is partially correct. There is some strength that we saw in the first quarter that was not anticipated or build into our guidance.
I think that we had stronger sales related to freight car products and a lot of that had to do with the severe winter that we had. We also saw the advantage that we had from our electronic product line and some of the growth was through the acquisitions that we had last year and the results were a little better in those acquisitions.
We typically don’t see some of the growth in acquisition right out of the [shoe]. So, in total we saw a little more strength than would have been reflected in our guidance.
And hopefully that will be sustained going forward.
Scott Group - Wolfe Research
Okay, great. And just a second question; most of the rails have raised CapEx guidance particularly for locomotives for the year and I think you guys are sticking with your guidance in terms of locomotive deliveries, maybe what’s the disconnect there?
And can you give some color, I don’t know if you’ve talked in the past about your content opportunity on locomotives and if that changes at all when the new Tier 4 locomotives kick in I guess next year?
Pat Dugan
Okay. Our guidance on the locomotives if you would have gone back to the fourth quarter last year as we saw we expect that actually locomotive business may have been flat to down.
And I think that we reported in February and again this year that we actually think of it’s going to be up a bit at about 1,100 to about 10% increase. We continue to see strength in that area whether those could be delivered or not in 2014 still needs to be seen.
So yes, I think we’re pretty consistent with what’s happened in the marketplace on locomotives. Your second part of the question was related to the content.
The content on a locomotive varies greatly. I think if we were to have every product that we possibly make on a locomotive, we could be upwards of around $200,000 per locomotive and that creates a good opportunity for us.
As far as Tier 4 that doesn’t create anymore products for us, but it does require redesign of many of our products to be Tier 4 compliant, one of which is as you’re aware, we make heat exchangers and that heat exchanger now has to have different thermal management conditions in order to help meet that Tier 4 requirement by the customers. Also some of the emission control equipment we have also needs to be designed to help meet the Tier 4.
So, it does create an opportunity, but it doesn’t really broaden our offering package.
Scott Group - Wolfe Research
Okay. Thanks for time guys.
I’ll get back in queue.
Al Neupaver
Okay. Thanks a lot.
Operator
The next question comes from Allison Poliniak of Wells Fargo. Please go ahead.
Allison Poliniak - Wells Fargo
Hi guys, good morning.
Al Neupaver
Good morning Allison.
Pat Dugan
Good morning Allison.
Allison Poliniak - Wells Fargo
Al, on your new product [come] in a topic you mentioned electronic braking and yesterday the NPSB [listening] some hearings and the concept of electronic braking was a big discussion. Just want to get your sense with all those crude-by-rail safety and sort of the appetite out there; I know it’s probably very early stages.
But do you think this could be a real opportunity as you move forward, I know there has been some challenges historically?
Al Neupaver
Yes. I think that there is a lot of challenges for the utilization of electronic control pneumatic braking by the freight railroads.
And primarily it comes into the fact that you need a unit train and a unit train is one that would travel from point A to point B and back and forth and not be changing the cars, because every railcar has to be equipped with ECP in order for it to be effective. And as you know most trains could have tank car, a hopper and a flatcar or whatever or even an auto rack all mixed in one train and that makes for it to be very difficult.
I think that crude-by-rail creates a potential opportunity that they may be able to use this concept to help electronic control pneumatic braking. It allows for shorter stopping distances, it allows for electronic control of each of the cars.
So there are some advantages, obviously you could get some of those benefits used in other technology such as distributive power and I think that a lot of railroads get some of the benefit from doing that. So, I think there is a lot that still has to be overcome.
We continued to have good success in the international markets primarily in the mining area where unit trains is the standard, Australia, Brazil, South Africa. So, I think that there is other complication in the U.S.
as well and that’s related to, if you lease the car, you own it, who pays for it, who gets the benefit. All those things really need to be worked through.
We see it as an opportunity not an immediate one, but long-term. This technology is good technology that adds value, it helps in the safety efficiency and the productivity of the railroads and it will be adopted overtime is our opinion.
Allison Poliniak - Wells Fargo
Great. And then Ray, you commented on transit obviously federal funding, I think your view makes sense that almost likely to just go on sort of a stable funding pattern for a little while until we can get Congress to move.
But how should we be thinking about that in terms of orders? It's sort of that was -- is that what transit assuming at this point and can we just keep going forward from here or could we see an acceleration once it sort of clarifies?
Ray Betler
So, I think Allison that we have a very strong backlog in transit to transit project sort of three to five years in nature. So, I think a stable trending toward increasing or slightly increasing funding stream is very good for us.
We have a pretty good share on the orders that we win. And we have lot of ongoing projects.
So, those projects are going to sustain our ability to grow our market. If you look at it on an international basis, we have a strong foundation in North America.
And our goal is to increase our market share in Europe and other places in the world. So, if the funding stream remains the same, it's a good thing for us.
If it increases, obviously it's better. But we're in a very good position and the opportunities really are international in the transit market for us.
Allison Poliniak - Wells Fargo
Okay, perfect. Thanks guys.
Al Neupaver
Thanks, Allison.
Operator
The next question comes from Matt Brooklier of Longbow Research. Please go ahead.
Matt Brooklier - Longbow Research
Hey, thanks. Good morning.
Al Neupaver
Good morning, Matt.
Matt Brooklier - Longbow Research
So, just kind of a higher level question for you, there has been obviously more talk of potential PTC delay here. You guys reaffirmed your guidance.
I guess the question is what gives you convection that you are able to potentially hit this guidance with incremental potential complications or delays on the PTC side. I mean what kind of differentiates, what you are doing in the market versus other, who are involved?
Al Neupaver
Yes. When you think about the delay on positive train control, what the delay is, is the full implementation of PTC on all the designated routes and designated locomotives.
That delay does not indicate this and truly we see it, there is any delay effort to try to get to that, still that same deadline and lot of work continues. And we’re part of all that work trying to develop and interoperable system with PTC.
So any delay, I don’t think they are going to stop spend money because I think that what they are trying to say is hey, we cannot meet the deadline but we are still going to work toward trying to, and we are going to get it done as soon as possible. I think that’s more of the message than we are going to stop and wait and continue.
I think the work will continue.
Matt Brooklier - Longbow Research
Okay. And are you able to provide some color on what total PTC sales in first quarter and how that broke out between the freight and the transit divisions?
Al Neupaver
Yes. Our first quarter sales were about 72 million in PTC related products, about half of that was freight, about a quarter of it was international and about a quarter of it was transit.
And that’s pretty much, if you look at the total spend up to this day in that area, that’s about where the percentages are at.
Matt Brooklier - Longbow Research
Okay, that’s helpful. And just last question, you mentioned seeing some benefit from weather on the maintenance side, is there any carry forward into second quarter and then if there was any negative weather impact maybe you could talk to that?
Al Neupaver
Yes. Obviously the weather impact, the negative part of it would have been just the railroads probably didn’t get the loads carried that they would have normally had.
They did not have the weather impact. So there might have been more activity but the severe weather is very tough on the equipment which I think we saw some added sales related to that.
As we look forward, during the quarter the deliveries I think were actually down fourth quarter of ‘13 to first quarter, almost 2,000 cars. We would expect with the backlog gone up to 82,000 which is I think the second highest in recent years, I think 2006 it might have peaked out at 88,000 or something like that.
And so, I would think that deliveries should actually increase going forward into the second, third, fourth quarter based on that backlog. That would be a plus that we would obviously see.
Matt Brooklier - Longbow Research
Okay, good color. I appreciate the time.
Al Neupaver
Thank you.
Operator
The next question comes from Thom Albrecht of BB&T. Please go ahead.
Thom Albrecht - BB&T
Hey guys, couple of questions here. So, just in your guidance, it looks like you’re calling for probably 8% -- 7% to 8% organic growth.
I want to see if you’re comfortable with that because as I went through your 10-K your organic growth last year was less than 1%.
Al Neupaver
Yes. Right now that’s about we’d expect to get half of our growth this year from internal growth and about half from acquisitions.
Your math is pretty good, Thom.
Thom Albrecht - BB&T
Okay. So, on this weather issue, I am just trying to picture it a little bit more specifically than couple of other questions.
I actually picture that weather probably created, maybe not in the beginning but the second half for the quarter, some repair opportunities in freight but maybe was more of a hindrance to transit and that that might lead to more repair work in the second quarter. Is that possible, or am I just over thinking it?
Al Neupaver
Yes, I think you’re over analyzing it a little bit, Thom. I don’t think it’s going to carry over into transit.
And I think most of the weather type things are behind us now. The only thing that you see in transit sometimes is delayed spending based on budgets or money available.
But we don’t know of anything that happened that way. Last year, during 2013 hurricane Sandy had a major impact on the transit lines, and there was a lot of aftermarket that happened from that and we saw that.
But I don’t anticipate any little pop in transit or freight into the second quarter related to that weather. I think the biggest thing will be that hopefully traffic will continue to improve as we’ve seen in last few weeks and that we would also expect that OEM delivery, the freight cars going up into the second quarter.
Thom Albrecht - BB&T
And then the other question is in recent years, usually the first quarter EBITDA margin is the low point for the year, but you had a very impressive 17.5% margin, do you think that could be the low point for this year as well?
Al Neupaver
We’re probably not going to comment on that, but I can, I would like to congratulate Ray Betler and the entire team of really operating that peak performance which I think that we always stride for, we are working for incremental improvement. I think it was a lot of questions in the last call related to the any improved margins and I think that we said with confidence we’re going to continue to try to do that and that’s our goal and we’ll continue to do that going forward.
Ray Betler
Thom, I want to thank you very much for a certain expectations from it.
Thom Albrecht - BB&T
Nothing like (inaudible). And I’ll get out, get back in queue in a moment, but I think Pat said the organic growth was about 75% in the first quarter, so that means your organic growth was just under 10%; is that a correct figure?
Pat Dugan
Yes, our organic growth was exactly three quarters of the total. That’s right.
Thom Albrecht - BB&T
Okay. All right.
Thank you very much.
Pat Dugan
Thank you, Thom.
Al Neupaver
Thanks Thom.
Operator
The next question comes from Justin Long of Stephens. Please go ahead.
Justin Long - Stephens
Thanks. Good morning and congrats on the quarter.
Al Neupaver
Thank you.
Justin Long - Stephens
I saw that the 1,000 unit locomotive order in South Africa you’ve been talking about was placed, it looks like with four builders. So I was wondering if you could talk about the bidding process for components associated with those locomotive.
What’s the potential opportunity and timing around winning some of this business? And then also just longer term, could you remind us of the additional locomotive and freight cars that are currently being discussed as potential orders in South Africa?
Al Neupaver
Okay. In South Africa, you are correct.
There was 4 builders were selected, they split up the electric locomotives and the diesel locomotives. Right now, the locomotive builders are going through the bidding process.
I can tell you, in the last month, we’ve made trips to South Africa, we’ve made trips to China and we visited with the other people here in the North America. That bidding process is going on right now.
We hope to have some success in our bids, we won’t know for a little bit of time and whenever we do know, we’ll announce it. But, we’re trying to get some content from all the builders.
Related to the transit vehicles, I think it’s 3,600, Ray?
Ray Betler
Yes.
Al Neupaver
They have laid out a contract to Austin. Again we’re aggressively talking to Austin about our participation in that project.
We’re not in a position where we could announce anything at this point. But again, we’ll keep you informed.
There are nice opportunities. We were pretty impressed with our South African operation and our General Manager in that area is doing a fine job and creating, a lot of requirements are going to be that you have to have localization of the manufactory in order to participates, so our visit was timely and important.
Justin Long - Stephens
Great, that’s a helpful update. It sounds like there is a lot of activity.
And I guess as a follow up one thing, I wanted to touch on with PTC and kind of follow up on an earlier question and your guidance. How much of your backlog today is PTC related, I am just trying to get a sense for how much visibility you have to that 10% to 15% increase in PTC revenue, you’ve guided for this year.
Is that already in the backlog today or do you need to win additional contracts to hit that target?
Al Neupaver
There is about $150 million in the backlog with PTC and its spread out over a long period of time. Typically we do not get a large backlog on the onboard computer, the only way we get some backlog is signing some of these transit contracts, but when we look at the freight railroads, where we are doing contract we are (inaudible) work as well as the onboard computer those usually coming in on the purchase order on the short delivery and we are able to support that.
Justin Long - Stephens
Okay, great. That’s helpful color.
I will leave it at that. I appreciate the time today.
Al Neupaver
Thank you.
Operator
The next question comes from Steve Barger of KeyBanc. Please go ahead.
Steve Barger - KeyBanc
Hi, good morning.
Al Neupaver
Good morning, Steve.
Steve Barger - KeyBanc
A couple of Fandstan questions. You talked about having an installed base or they have an installed base in 100 countries, what’s the dollar basis of the installed base if you know?
And does that base track the revenue mix of 60% transit and 40% industrial?
Al Neupaver
I don’t have the dollar value of the installed base, and I tell you why, Fandstan was a company that started in the UK. And their when we did meet with their CEO it was amazing that their strategy was very similar to ours, he named the same -- and I know a lot of companies have the same strategies, but he named the same but he also did a lot of the growth related to acquisitions of companies around the world.
So I would imagine that installed base is excellent, but keep in mind it’s only a 30% aftermarket business. So we think there is some opportunity there to grow that.
Some of the products they installed though even installment though they are for 30, 40 years and that’s they make a conductor rail, a third rail product that actually make the rail with -- it’s a [clouded] material with aluminum that the electricity is transmitted on and that product doesn’t really have an aftermarket. So there is some products that create an opportunity for us and there is others that probably you are just not going to get in aftermarket with.
Steve Barger - KeyBanc
I got it. And that actually sagged into the next question, in terms of the useful life on transit or industrial, is more of the aftermarket focused on the industrial side and typically for the aftermarket that you are serving, are these types of products where customers can push out or defer CapEx or do they have a more predictable replacement cycle?
Al Neupaver
On Fandstan if you look at the pantograph, the pantograph is the -- how do I explain it, it’s on top of the -- if you ever look at a street car or a transit car on top of it you see this thing that kind of [scissors] up some up and down on springs and that has a good aftermarket and I knew that a carbon shoes up there that need to touch the wire that’s hot. Also on the third rail shoe gear that wears as well because they sale the actual component that goes between the vehicle and the third rail.
And some of the other industrial products which are large induction lines they import, they have C ports where they make these big wheels in festoons, some of those have some aftermarket, not a lot less than normal. So it’s actually more on the transit has the aftermarket in my opinion than the industrial.
I don’t Ray you may have a comment on that.
Ray Betler
Yes, I agree 100% what your assessment are. And I think that high maintenance where products are just what I will explain the pantograph is by far to top of list in terms of opportunities.
Steve Barger - KeyBanc
Got it. Historically speaking can you give us the growth rate for Fandstan?
Al Neupaver
It probably won’t -- intrinsic I would think it’s probably in the 3% to 5% range, but if you look at it historically they’ve had acquisitions over the year, so it’s grown rapidly.
Steve Barger - KeyBanc
So you think that 3% to 5% is the organic plus or minus?
Ray Betler
That’s what our assumption is, yes.
Steve Barger - KeyBanc
And I know it’s going to be not contribute much on the EBITDA line this year, but as you look out and you just look at this family of products where do you think the Fandstan transit and industrial margins can go, if you want to (inaudible)?
Al Neupaver
Yes, normally what I’ll tell you is they’re going to improve, you could be assure that our goals and objectives will show that we’re going to try to improve those margins. We really don’t have a goal in mind other than continuous improvement.
We think there is, as I stated we think there is a lot of opportunity especially as we apply our lean manufacturing techniques to Wabtec performance system. We think that there is a lot of sourcing opportunities, I apologize I think I’m getting an echo for some reason.
Yes, I would think that probably is an opportunity, but I’d rather not give you an exact number.
Steve Barger - KeyBanc
Okay. And since been late in the call, actually one more and then get back in line.
You’ve been expanding your international footprint to gain access of these global markets, which certainly has been a successful strategy. But are there still opportunities domestically from a share standpoint, mid-weather it’s on content on a railcar or locomotive or are you kind of getting there and yield more grow with the market?
Al Neupaver
Well, I think there are certain products and certain businesses that will grow with the market, but there are also opportunities to broaden our product lines, which would allow us to increase our share. We still do not offer the full range of products in transit or freight.
Steve Barger - KeyBanc
Is there, just to follow-on, is there more opportunity on transit or freight to broaden the product lines?
Al Neupaver
Transit’s a small market in the U.S. so you could get incremental improvement, but it’s not going to end up that much in the bottom-line.
Freight’s a much larger market, so I would think that the growth would be more in freight and faster than in the transit.
Steve Barger - KeyBanc
Got it. Thanks.
Operator
Next question comes from Art Hatfield of Raymond James. Please go ahead.
Art Hatfield - Raymond James
Good morning. Hey thanks for taking my question, I’ll try to be quick.
If you already hit on this, I apologize, Al. But you had mentioned a regulatory kind of hang-up on Fandstan, where is that add?
Is it here or the UK?
Al Neupaver
Really it's a global regulatory issue that I think will be resolved in the second quarter.
Art Hatfield - Raymond James
And is that just kind of your comfort level with where is that or is that based on kind of legal or regulatory requirement that they make a decision within a certain amount of time?
Al Neupaver
I think that there is probably no time limit on this decision, but we're confident that it will be resolved.
Art Hatfield - Raymond James
Just going back to Tom's question about margins for the rest of the year and I think my understanding on this is correct. But once you start to bring in Fandstan, Fandstan initially is going to have a margin drag.
Is that not correct?
Al Neupaver
It will have a -- yes, it's lower than the transit on average, right.
Art Hatfield - Raymond James
Right. Okay.
So that is just…
Al Neupaver
Plus we have the expense, the expenses of the integration, as well as the purchase price accounting. So, initially it has had larger drag than it will say once you -- what you have to do is the inventory value that is building the inventory has to flow out.
And your backlog, you have to go through your backlog, you have to operate through that backlog. And any profit that’s in either one of those have to flow through the P&L is a negative hit.
I learned that from these accountants that (inaudible) try to explain this.
Art Hatfield - Raymond James
Yes, unfortunately. Now you did a good job.
So, when we think about Q1 potentially versus the rest of the year, we need to take that into account when we think about margin excluding all other issues that could come out, right?
Al Neupaver
That's a valid statement, but as you know our goal is to continue to improve margins.
Art Hatfield - Raymond James
I understand that. Thank you.
Al Neupaver
Thank you, Art.
Operator
Next question comes from Liam Burke of Janney Capital Markets. Please go ahead.
Liam Burke - Janney Capital Markets
Yes, thank you. Good morning, Al.
Al Neupaver
Good morning, Liam.
Liam Burke - Janney Capital Markets
Al, several quarters ago you talked about your Chicago service center and today in your prepared comments you said service is going to be a big part of your growth going forward. Do you see any need to expand that Chicago service area and is that going to affect any kind of capital expenditure?
Al Neupaver
Yes. We expanded that in 2013, right Ray?
Ray Betler
Yes.
Al Neupaver
And it was not a major expenditure. As our offering continues to take hold then we do more in that area.
We will have some capital going to be required in order to expand because of locations and everything in that particular market area.
Liam Burke - Janney Capital Markets
Now do you plan on taking that outside of Chicago or is that just kind of where you just kind of continue?
Al Neupaver
Yes. Right now we have a repair facility in Houston; Chicago was a Greenfield site that we put in.
We have one down in Houston, we have one in Salt Lake City, we have a repair in Boise and Chicago now. I think those are the locomotive repair centers we have.
So, we do have quite a few now.
Liam Burke - Janney Capital Markets
Okay. And Pat, you mentioned that a lot of the cash you have is residing overseas, does that change any of your -- how you are going to address your capital needs in the future?
Pat Dugan
No, I mean we contemplate that in our cash plan every year. Really our goal is to use that cash and reinvest in the business and do it in a way that’s the most efficient from a treasury and a tax standpoint.
Liam Burke - Janney Capital Markets
Great, thank you.
Operator
The next question comes from Samuel Eisner of Goldman Sachs. Please go ahead.
Samuel Eisner - Goldman Sachs
Yes. Thanks very much.
Good morning everyone.
Al Neupaver
Good morning, Sam.
Samuel Eisner - Goldman Sachs
Just going back to few of your comments on the share repurchase, it sound like though you are going to be active I think that’s the word that you use regarding share repurchases and this represents about 2.5% to 3% of turned cap. Just curious how you guys are thinking about using that outstanding, I guess $200 million?
Should we expect you to do that by the end of the year or should that creep into ‘15 as well?
Al Neupaver
It could very easily creep into beyond, I think if you historically look at what we’ve done on share repurchases when we say active I think that you’re going to see more of the same. We’ll be opportunistic; we definitely want to minimize any creep that would happen with the share count.
We just wanted to point out that the first quarter is not indicative of our normal strategy because we only had a window that was open for very short period of time, I think maybe a week. It was open and there was a lot of, that’s when the stock-based comp gets spin as well.
So, we just want to point out that the first quarter is not indicative of our strategy.
Samuel Eisner - Goldman Sachs
Understood. And then Pat on the cash generation I think you said about $26 million in cash from ops just that seems to be down about $6 million year-on-year.
So just curious what’s driving the lower cash generation for the company?
Pat Dugan
Well, our first quarter is always a challenge. We have a number of uses of cash I mean simply paying taxes and other items that normally build up throughout the year.
So, we end up having sort of our weakest cash generation in the first quarter. And that gets better as the year goes on.
Clearly the growth of the sales, the top-line has impacted our use of cash as we -- our working capital has gone up with receivables and inventories. So, we tend to see as the year goes on that the cash generation improves quarter-over-quarter.
And really I don’t think that this is anything that’s anything problematic.
Samuel Eisner - Goldman Sachs
Okay. So it just sounds about $6 million of working capital built.
And then on PTC, I think last quarter there was a delay or push out in revenue or PTC revenue that was going to hit in the fourth quarter, has that all been captured in the number that you set today Al, or is there still more to come on that portion that was delayed?
Al Neupaver
No, I think it’s all captured in what we discussed. And I am struggling a little bit to remember exactly which delay, I don’t know of any, the large amount percentage…
Pat Dugan
Orders were pushed out.
Al Neupaver
Orders were pushed out, okay. Yes.
No, I don’t think there is anything hang in there, okay?
Samuel Eisner - Goldman Sachs
Understood. Thanks.
Al Neupaver
Okay, thanks Sam.
Operator
The next question comes from Greg Halter of Great Lakes Review. Please go ahead.
Greg Halter - Great Lakes Review
Yes, thank you. Good morning guys.
Al Neupaver
Good morning Greg.
Greg Halter - Great Lakes Review
I wondered if you could comment on how the MRS roll out is going down in Brazil.
Al Neupaver
Right now our pilot program continues to operate, it’s utilizing the PTC system. We’re working through trying to solve any of the issues we have with the system; at the same time, we’re expanded into new areas, we’re doing it section-by-section.
I think it’s going well. We stay very close to it.
I don’t know if any major concerns that we have at this point other than trying to complete it as soon as we can. It’s a very large system that has a lot of tunnels, there is a lot of complexities with the signaling system that we’re working through.
Greg Halter - Great Lakes Review
All right. And Pat, wondered if you had figures for total assets and equity at the end of March?
Pat Dugan
I do. Our total assets are $2,917 million and are shareholders equity is $1,680 million.
Greg Halter - Great Lakes Review
All right, thank you. And within the freight segment, I wondered if you could comment on how the industrial piece of that did, if that was a headwind, tailwind or what?
Al Neupaver
Yes, it’s actually improving. What we are seeing is the industrial business is coming back.
I think that the production of natural gas has gone up significantly, we see the results of that. So our industrial business is returning not completely at this point, but is showing signs of being healthy into the future.
Greg Halter - Great Lakes Review
All right. And couple of final ones, on both the freight and transit, wondered if you could break down the OEM versus the aftermarket in the quarter?
Al Neupaver
Okay. I can tell you that on freight OEM was 25%, aftermarket was 55%; on transit OEM was 35% and aftermarket was 65%; total was 40% OEM, 60% aftermarket for total business.
Greg Halter - Great Lakes Review
Great, thank you very much.
Al Neupaver
Thanks a lot.
Operator
The next question comes from Scott Blumenthal of Emerald Advisers. Please go ahead.
Scott Blumenthal - Emerald Advisers
Good morning, gentlemen.
Al Neupaver
Good morning Scott.
Scott Blumenthal - Emerald Advisers
Al, you mentioned the -- in Scott’s question, very first question long ago that you’re going to benefit and you’re maybe one of the few companies to benefit from the severe weather. You also mentioned that you felt that you saw benefit here during this quarter.
Did that occur closer to the end of the quarter and maybe can you provide us with some insight as to how the cadence of the sales progressed through the quarter?
Al Neupaver
Yes, it was towards the end of the quarter, mostly in the third month, actually in March. I think they, probably just trying to keep everything running was probably the goal in January, February.
And it’s not, don’t misunderstand, this was not a large increment that we saw from that but it was worth noting.
Scott Blumenthal - Emerald Advisers
Okay. Thank you for that.
And as Allison mentioned, crude and natural gas are obviously now big topics in the domestic rail business, maybe this is a better question for Ray. Can you maybe provide an update on the opportunities that this might represent for Wabtec, maybe locomotive engine types, natural gas tenders, new types of fueling system, those type of things?
Ray Betler
I think Scott as far as opportunity for crude by rail, I think we’ve mentioned before that the type of trains and the type of haulage really doesn’t have a significant difference on us in terms of our opportunities; certainly if the volumes go up, that’s an opportunity. But in terms of technology, technology applications and product applications are pretty much the same.
If there is any kind of migration or regulatory requirement to go [PTC] obviously that would be a big plus. There is product down, instead we are doing to always to try to capture incremental opportunities in those areas.
Some of those are follow-ons from some of the incidence that have occurred in that market. But in general, I think the best opportunity we have comes through the increased volume.
Al Neupaver
And if the technology went from diesel fuel to natural gas, it really would not have a major impact on us.
Scott Blumenthal - Emerald Advisers
Okay, fair enough. Thank you.
Al Neupaver
Hey Scott, thank you.
Operator
(Operator Instructions). This concludes our question-and-answer session.
I would like to turn the conference back over to Albert Neupaver, Chairman and CEO for any closing remarks.
Al Neupaver
Thank you very much. And we will talk to you soon.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.