Q1 2022 Westinghouse Air Brake Technologies Corp Earnings Call
Good day and welcome to the Wap Tech first quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
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Please note. This event is being recorded I would now like to turn the conference over to Kristine Kubacki, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to <unk> first quarter 2022 earnings call with US today are president and CEO Rafael Santana CFO , John Olin and senior Vice President of Finance, John Max alerts.
Today's slide presentation, along with our earnings release and financial disclosures were posted on our website earlier today and can be accessed on the Investor Relations tab on Web Tech Corp Dot com.
Some statements, we're making are forward looking and based on our best view of the world and our business today for more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and presentation.
We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics.
I will now turn the call over to Rafael.
Thanks, Christine and good morning, everyone.
Let's move to slide four.
I'll start with an update on our business my perspectives on the quarter and progress on our long term value framework.
John will cover the financials.
Overall, we achieved significant progress against our long term strategies that we detailed at our Investor day in March we delivered a strong first quarter as shown by the 5% sales. Good all adjusted operating margin expansion of one four percentage points and adjusted earnings per share growth.
27% total cash flow from operations was $161 million.
Finally, we ended the quarter with about $23 billion of multiyear backlog, which was up $1 $1 billion from last year.
For all our team overcame a volatile and disruptive environment and delivered a strong first quarter despite challenges across the supply chain higher costs and the impact from the conflict in Ukraine.
We are monitoring the devastating situation in Ukraine, our Hearts go out to the people they are their resilience and courage are truly inspirational.
For the year, we expected Russia to account for roughly 5% of our earnings we do not expect our business in that market to return for the remainder of the year.
Given the situation. Our first priority is to continue to protect the safety of our employees in the region and abide by all sanctions.
On the positive side, we do believe that the rail industry and <unk> are well poised to benefit from significantly higher energy prices and from the likelihood of shifting global commodity flows over the medium term.
Rail significant fuel advantage over truck is the only widening with rising fuel prices improving the value proposition for rail.
We are enhancing our customers' productivity capacity utilization and safety through investments in de Carbonization and digital technologies.
<unk> of our portfolio, along with our unmatched technologies and deep expertise means our order pipeline continues to strengthen and our visibility beyond 2022 continues to increase.
Our confidence in our company's future is reflected in our first quarter purchase of $296 million of.
<unk> stock and in the increase of our first quarter dividend by 25%.
Shifting our focus to slide five.
Let's talk about end market conditions in more detail.
As we look at key metrics across our freight businesses. We are encouraged by the underlying momentum of our industry. Many key metrics are improving with the exception of North American carloads.
Spike the slow start we expect carloads to improve as the year progresses.
Commodity markets continue to decline despite weaker freight traffic in the quarter, we expect demand for reliability productivity and fuel efficiency to continue to increase pricing on our services business and modernization portfolio in a position of strength.
When it comes to the North American railcar built.
Demand for railcar is increasing from what we believe are trough levels railcar.
Railcars in storage are below pre COVID-19 levels with about 18% of the North American railcar fleet in storage.
As a result industry orders for new railcars continue to improve the industry outlook for 2022 is for over 40000 cars to be delivered.
Internationally freight activity continued to show growth in the first quarter across many of our major markets and our order pipeline remains strong.
We expect long term revenue growth in the majority of our end markets.
Transitioning to the transit sector ridership trends continue to be uneven in various markets. However, infrastructure spanning for green initiatives continue to be a bright spot special yes governments globally invest in rail for clean safe and efficient transportation.
Overall, the long term market drivers for passenger transportation remain positive.
Next let's turn to slide six.
When it comes to the long term shareholder value, we are continuing to drive progress against our value creation framework, which is anchored around five key growth strategies.
Includes accelerating the creation of innovative and scalable technologies and using this technologies to grow and refresh our expansive global install base.
Leading the de carbonization of rail expanding high margin recurring revenue streams, which reduces our exposure to economic and industry cycles, and most importantly, driving continuous operational improvement and.
And we are making strong progress against this strategy.
In the first quarter, we won silver always strategic orders, including our largest digital order in India for online monitoring of rolling stock.
This new automated system as part of Amgen Railways Smart yard initiative and it will improve the availability of the railways fleet of coaches wagons and locomotives.
We also won key digital orders with class ones for our next generation dispatch offering as well as our Fleetwide PTC hardware upgrade.
We also secured a strategic order for 330 locomotive Modernizations with Norfolk, Southern and we've introduced a new locomotive model to Brazil straight rail market with deliveries to Romo Mris and Susana.
Finally, we launched our integration should not all restructuring program, which as we outlined at our recent Investor Day will drive continued footprint rationalization as well as manufacturing and engineering efficiencies across our operations.
Through these efforts, we expect to deliver between $75 million to $90 million of additional run rate savings by 2025 and position <unk> for continued growth.
With that I'll turn the call over to John to review the quarter segment performance and our overall financial position John .
Thanks, Raphael and good morning, everyone turning to slide seven I will review, our first quarter results in more detail. We had another good quarter of operational and financial performance. Despite challenges in the supply chain cost increases and the impact of Russia.
Sales for the first quarter were $1 $93 billion, which reflects a five 3% increase versus the prior year.
Sales were positively impacted by the continued broad recovery in our freight segment higher pricing and the acquisition of Nord coal, partially offset by lower year over year sales and transit driven by unfavorable foreign currency exchange and supply chain disruptions.
We continue to experience adverse impacts to our sales results in both segments due to shortages across many component parts, including computer chips, which caused delays in production and customer delivery.
For the quarter adjusted operating income was $319 million, which was up 15, 2% versus the prior year.
We delivered strong margin expansion up one four percentage points on an adjusted basis margins were aided by mix favorability increased pricing and improved productivity driven by higher absorption of fixed manufacturing costs, partially offset by $45 million to $50 million of higher costs the team achieve margin expansion.
Spansion, even in the face of a highly disrupted supply chain and a challenging inflationary environment.
In the first quarter adjusted earnings per diluted share were $1 13 up 27% versus prior year.
GAAP earnings per diluted share were <unk> 80.
Which was up 35, 6% versus first quarter, a year ago. During the quarter, we had charges of $7 million for restructuring and other one time charges largely related to our integration to point O initiative to further integrate web tech operations and to drive $75 million to $90 million of run rate savings by 2000.
<unk> 25.
As Rafael noted we are pleased with our Q1 results and particularly to our sales growth in the face of supply chain disruptions and unfavorable currency exchange and our margin growth in the face of continued cost increases.
We remain diligent and proactive as we worked to minimize these challenges.
Turning to slide eight let's review our product lines in more detail first quarter consolidated sales were up five 3% versus last year driven by higher sales in the freight segment, partially offset by lower transit segment sales first quarter sales were adversely impacted by foreign currency exchange of two percentage points and kantar.
<unk> supply disruptions equipment.
Equipment sales were up four 6% year over year due to continued strong mining sales.
We remain encouraged by the improving trends in our component business component sales continued to build momentum and were up 12, 8% year over year, driven by higher OE railcar build lower number of railcars in storage and a strengthening recovery in industrial end markets.
In line with an improving outlook for rail our services sales grew 18, 5% versus last year. The year over year increase was largely driven from higher sales from modernizations. The unpacking of locomotives and the acquisition of Nord pool, the superior performance reliability and availability of our fleet continues to drive customer.
Demand as railroads increasingly look for predictable outcomes across their fleets.
Excluding Nord co organic sales for the first quarter were up 11, 5%.
Digital electronic sales declined one 9% versus prior year, driven primarily by ongoing shortages of chips. We continued to see improved demand for onboard locomotive products in our backlog and digital continues to increase.
And even more importantly, we continue to see a significant pipeline of opportunities in our digital electronics product line as customers globally focus on improved productivity increased capacity utilization and safety.
Across our transit segment sales decreased six 5% versus prior year to $605 million sales were down versus last year due to supply chain issues lapping the exit of low margin UK contracts and the negative impacts of foreign currency exchange foreign currency exchange alone adversely.
Impacted revenues by five one percentage points, we believe the medium and long term outlook for this segment remain positive as infrastructure spending for green initiatives continue.
Moving to slide nine our adjusted gross margin expanded one seven percentage points to 31, 1% driven by product mix increased pricing and favorable manufacturing costs, partially offset by higher raw material costs and unfavorable foreign currency exchange.
Mix and pricing positively impacted our margins mixed benefited.
Margins as freight sales outpaced our transit sales. Additionally, higher pricing was realized from price Escalations incorporated into many of our long term contracts along with other pricing actions that were implemented to recover increased costs.
Raw material costs were again up significantly led by increased metal cost, including steel aluminum copper and dramatically higher fuel costs.
Foreign currency exchange adversely impacted revenues by two 8% and adversely impacted first quarter gross profits by $10 million.
Finally manufacturing costs were positively impacted by favorable absorption of fixed costs.
We offset by exponentially higher transportation and logistics costs.
Current global container costs continued to be significantly higher than last year's average.
In aggregate the continuing effects of the supply chain disruptions higher materials transportation and labor costs are estimated to be $45 million to $50 million higher than last year's first quarter.
Our team continues to execute well to mitigate the impact of these cost pressures by triggering price escalation implementing price surcharges and driving operational productivity and lean initiatives.
Turning to slide 10 for the first quarter adjusted operating margin expanded one four percentage points versus last year.
Our margins benefited from higher adjusted gross margin, but were partially offset by higher engineering expenses from increased investments in future technologies.
Adjusted SG&A was $236 million, which was up $13 8 million from the prior year due to in part the acquisition of <unk>.
Engineering expense increase from last year According to plan.
We continue to invest engineering resources and current business opportunities, but more importantly are investing in our future as an industry leader.
Carbonization and digital technologies that improve our customers' productivity capacity utilization in safety.
Now, let's take a look at segment results on slide 11, starting with the freight segment.
As I already discussed freight segment sales improved for the quarter and segment adjusted operating income was $259 million for an adjusted margin of 19, 6% up one five percentage points versus the prior year.
The benefits of higher sales improved mix and increased pricing were partially offset by significantly higher input costs.
Finally segment backlog was $19 $2 billion up one point over $2 billion from the end of the first quarter last year due to the broad multi year order momentum that Raphael discussed earlier.
Turning to slide 12.
Transit segment sales were down six 5% driven by the negative effects of foreign currency exchange and supply chain disruptions adjust.
Adjusted segment operating income decreased by 5 million to $74 million.
Which resulted in adjusted operating margin of 12, 3% up <unk>, one percentage points versus the prior year.
Increased pricing and lower year over year, SG&A were largely offset by a significant increases in input costs and unfavorable foreign currency exchange.
Across the segment the team delivered a strong operational performance as we continue to focus on driving down costs, implementing lean and improving operational efficiencies despite the volatile environment.
Finally transit segment backlog for the quarter was $3 $74 billion up slightly versus a year ago adjusting for the negative effect of foreign currency exchange backlog.
Would have been up roughly five 5%.
Now, let's turn to our financial position on slide 13.
During the quarter, we generated $161 million of operating cash flow, resulting in a cash conversion of 59%.
Our cash conversion rate in Q1 was below our full year target of being over 90%.
Cash flow has historically been the lowest in Q1.
This was compounded this quarter by proactively building inventories ahead of our strong growth expectations for the back half of the year and managing supply disruption of critical parts.
Additionally, as expected the payment of short term incentives was considerably higher in Q1 of 2022 versus the Covid impacted Q1, 'twenty one payment.
Looking forward, we are confident we will generate strong cash flow for the year, our adjusted net leverage ratio at the end of the first quarter declined to two five times and liquidity is robust at $1 $5 billion.
Also during the quarter, we returned more cash to our shareholders repurchasing an additional $296 million.
Of shares and paid dividends of $28 million, which was up 25% versus our prior year dividend rate.
As you can see in these results our financial position is strong and we are confident that we can continue to drive solid cash generation, giving us the liquidity and flexibility to allocate capital towards the highest return opportunities integral shareholder value.
With that I'd like to turn the call back to Rafael.
Thanks, John let's flip to slide 14 to discuss our 2022 financial guidance last quarter, we issued guidance with sales growth at the midpoint of 8% and EPS of $4 65.
To $5 <unk>.
Or up roughly 14% at the midpoint, our guidance was based on improving industry momentum and strong underlying customer demand for our products.
<unk> from supply chain disruptions.
Unfavorable mix and a still challenging cost environment with higher investments in technology, we are continuing to take action to drive margin expansion and grow our business over time with.
With the first quarter behind Us, we feel strong about our businesses and delivered against our original plan of financials, despite unplanned loss of business in Russia.
I am pleased with the strength and resilience of our business and more importantly, I am extremely proud that our team has found a path to deliver to our plan, despite an alpha changing and challenging environment.
The reality is that our business in Russia was expected to earn about 25 per share in 2022, which pressures to the top end of our guidance range. However, despite this pressure and recognizing the strong underlying execution.
Pipeline of opportunities in the business and the still volatile market conditions impacting 2022 and beyond we are not changing our original guidance.
Now, let's turn to the next slide.
Our team delivered a very strong start to the year, despite a challenging and rapidly evolving environment.
Im proud of their efforts to deliver for our customers drive strong financial results and further strengthen our financial position.
As we look forward the rail sector, and <unk> are well positioned to increase share and solve the critical issues facing the world's freight and logistics sector.
We will continue to lean in the strong fundamentals of the industry and our company to drive long term profitable growth.
Our long term strategy continues to be built on our deep industry expertise grounded in innovation breakthrough initiatives and scalable technologies that drive value for our customers.
These efforts will continue to be accelerated by our lean continuous improvement culture and disciplined capital allocation.
We have said before <unk> munition holds a larger purpose to move and improve the world.
I'm confident that this company will continue to deliver and lead the transition to a more sustainable future with that I'll turn the call back over to Christine to begin the Q&A portion of our discussion Christine.
Thank you Raphael, we will now move onto questions, but before we do and out of consideration for others on the call I ask you that you limit yourself to one question and one follow up question. If you have additional questions. Please rejoin the queue. Operator, we are now ready for our first question.
We will now begin the question and answer session to ask a question you May Press Star then one on your touch 10 phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question Thats been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Justin long with Stephens. Please go ahead.
Thanks, and good morning.
Justin.
So maybe to start on the guidance Rafi Al you mentioned that Russia was 25 cents of the original guidance for the full year just to be clear on that are you in now assuming that number is zero and if.
So with the guidance range unchanged can you talk about what the positive offsets to that headwind in Russia.
Yes, so thats right, we are considering at zero for the year at this point I think the offsets.
Justin I'll start with the first quarter were really tied to well first I think the business is operating well our teams.
Have done strong execution, we are also seeing.
Positive.
Coming from the unpacking of locomotives with demand on the services business. We also have seen a stronger mining business.
Now we had anticipated. So if you think about the year I think is continuing to work to find offsets not just tied to the loss of the business in Russia, but headwinds of inflation and supply chain transportation costs as well.
I think with the first quarter behind US I think the team continues to work on those offsets Dr.
There are things that I would add is uncertainty has certainly increased since we last spoke in February but we have probably a stronger pipeline of opportunities in the business and I think despite of the volatile market conditions, we felt really shrunk about maintaining guidance at this point.
Okay, Great and maybe following up on the pipeline specifically on international locomotives do you already have enough in the backlog at this point to say Youre deliveries will not only be up in 2022, but also in 2023 just from an international.
<unk> locomotive perspective, and are there any data points you can share on new contract wins that are in the market today that youre bidding on.
So, yes, just and number one we have fundamentally the backlog again for what we need as far as new locomotives being delivered this year.
It's actually started.
<unk> started that gains momentum through the year. If you would have the second half of the year, we're going to actually be delivering.
More than 50% more locomotives than we did on the year before in the second half. So I think that's one data point I think what was more exciting about the quarter was really the backlog. It was a positive getting the quarter I think we see momentum in the order intake and growing backlog.
The pipeline of deals have strengthened again and this is probably the strongest pipeline of deals we've had over the last five years.
Our commercial team here continues to be focused on converting this pipeline I think you saw some of that progress with the things we announced here in the first quarter.
The strength is also reflected on the 12 month backlog. This is certainly the highest.
<unk> had since the merger and Thats for both freight and transit.
I think there is good momentum there and I think some of things.
Things I described to you certainly help I think 'twenty three 'twenty four and beyond so multiyear orders that really help us to continue to build momentum. So it's.
Something very positive we signed the quarter.
Okay, great to hear I appreciate the time.
Thank you.
Our next question will come from Jerry Revich with Goldman Sachs. Please go ahead.
Yes, hi, good morning, everyone. Good morning, Sir.
Rob why don't you.
Interesting developments.
That we've seen in your business over the years has been just the growth.
Mods and your strong Mas market share can you just update us on what my deliveries looked like year over year in the first quarter and whats the cadence look like.
Over the balance of the year in light of the recent order strength you've had for months specifically thanks.
So gerry.
Double digit growth this year versus last year into the module business when you look at Cros.
The year I think there is relative consistency, we could have variation just in terms of time of shipment, but double digit growth, but I think what's more exciting is.
I think I'd had mentioned that before on other calls I think what we thought would have been a cap in terms of that volume in North America, we see the opportunity here to further expand that business and internationally I think some of the momentum continues.
And so we see that business with <unk>.
Strong opportunity here to continue to grow moving forward.
Okay, Great and then can you talk about the earnings cadence over the course of the year. When do you expect revenue burn to accelerate.
Given the moving pieces that you spoke about earlier.
Hi, Jerry this is John with regards to the earnings cadence came out last quarter and talked about we expected the first half to be a little bit lighter in terms of revenue growth and but heavier in terms of earnings growth and that would reverse in the back half and the big difference between the two is what Raphael just talked about as our equipment grows.
It is going to gain momentum through the back half.
I think what we're seeing in the first quarter is very much in line with that overall sequence and we had revenue growth of five 5% and margin growth of 1.4 percentage points as we look to the back half we would expect to see significant revenue growth. However, our overall <unk>.
<unk> growth is going to be lower on a year over year basis than it is in the first half I'm sorry on a year over year basis, that's driven jewelry by three things one.
Is the mix shift because of shipping at a much higher percentage of equipment sales.
Second is easier comps were tougher comps in the back half by about one five percentage points and the other is what Raphael mentioned as well, we would expect more cost pressure in the back half because of the most recent cost surge that happened in Q1 with the invasion of Ukraine.
Okay I appreciate the discussion thanks.
Thank you.
Our next question will come from Scott Group with Wolfe Research. Please go ahead.
Yes.
Yes. Good morning. This is <unk> on for Scott Group.
First one I'm not sure I understand that good morning, I understand youre expecting zero for Russia. This year, but how are you treating this exposure in your multiyear backlog. Thanks.
So with regards to number one the business in Russia, we are complying with all sanctions and legal requirements.
We are committed again to the safe operations of equipment in the region and we have I would say to some extent provided nominal support for this purpose.
Given the uncertainty given the conflict we have removed Russia from our backlog.
Thank you.
And my follow up can you quantify the number or percentage of locomotive on parking and <unk> and what are your expectations for second quarter. Thank you.
Tell you the area. So we continue to see on parquet, where back to numbers that are comparable to the third quarter of 2019, so doubts.
Thank you.
Good she had a positive for the business. Some of those fleets that are on park had been parked for quite a bit of time and demand some level of investment, but I think most importantly, when you look at the fluidity of the velocity and the network I think the demand for really reliable power and continued investment for our cost.
Marsh in order to continue to incur.
Improve those metrics I think that's something.
We certainly have I think a lot of the solutions for it.
Thank you.
Our next question will come from Courtney <unk> with Morgan Stanley . Please go ahead.
Hi, good morning, guys.
I hate to belabor, Russia, but just a couple quick follow ups.
I think you had mentioned at the analyst day. The majority of the impact was supposed to hit <unk> from Russia. So I just wanted to confirm that.
And so the majority or the rest of the year will be less impacted from that headwind.
And then secondly, if you could just comment at all on on freight versus transit exposure and I think you also mentioned that you had removed pressure from the backlog so.
Just any impact to those.
To the segment level backlogs Hi, Courtney this is John coordinate what we had talked about in Investor day is that we would be a little bit over shared in the first quarter in terms of earnings expectations.
We did not say the majority of our earnings would be in the first quarter on a full year basis, we had planned for 25.
In the first quarter, we probably three or four cents.
<unk> before the conflict began but it was just a little bit overweighted versus <unk>.
Even split across all quarters.
And the other pieces is yes, Russia is out of the backlog.
During the quarter this quarter.
Okay Gotcha and then.
Just on share repurchases I think that was a little bit higher than we were expecting I think you had a $750 million reauthorization.
You had announced and now it's close to halfway done so.
Just as we think about the pace for the rest of the year.
Any guidance you can give to that and if that was.
A key offset as well and maintaining the guidance.
That was not a key offset the maintaining the guidance, but we're very pleased to have purchased 300 million and largely courtly Courtney it's going back we came out of what we believe is the trough in 2021, we feel confident in the future when they get off to a good start to the year and were able to repurchase 300 million shares.
As we look forward I think I would go back to what we had said at Investor day with regards to capital allocation that.
That we are.
And we're going to focus on making sure that we have a strong balance sheet, we invest in the business.
In terms of capital and technology spend which you saw in the first quarter.
The dividend and protecting the dividend then from there we would prioritize and continue to prioritize acquisitions as long as they are strategic and accretive.
Share repurchases and finally, barring that any excess cash will come back to our.
Shareholders in the form of share repurchases.
Thank you.
Thank you.
Our next question will come from Chris Wetherbee with Citi. Please go ahead.
Hi, Thanks, Good morning, guys, Eli Wenski on for Chris maybe we can start with the <unk>.
OEM side.
You saw that revenues were higher this quarter than the prior quarters.
21 2020.
What's the cadence of the growth in that segment might look like given some of the congestion.
The supply chain issues.
Are you referring to the transit segment.
Yeah.
Right, what we're seeing as far as transit as overall revenues were down six 5%.
As we had mentioned five one percentage points of that is due to currency. The other drag that we had with regards to revenue is about well not about a year ago first quarter, we exited a lot of our U K operations on the service side so in aftermarket.
That was basically our brush product line by the time, we exited that business. It was the end of the third quarter and right now we're lapping those.
Higher revenues from a year ago, as we exit that business.
Roughly about the same impact the currency had on our transit business.
The third element, obviously of supply disruptions continue to hit that business, a little bit more than others, but excluding those we would've seen good underlying growth in the transit business.
Got it thanks, and then maybe jumping up to services and the acquisition of Norcal was.
How are the expenses.
Coming out of that business now with some of the synergies from that acquisition.
It's probably likely that you should be seeing that start to fade off here Morris now and some of the first quarters correct.
During the acquisition, we would look to take $10 million of cost out of that business over the next couple of years and we are tracking with that I mean, thats coming out certainly in operational efficiencies that would hit gross margin as well as.
A lot of duplicate SG&A expenses aren't coming out as well.
This will be the last quarter that we're lapping that acquisition and with that we did see higher SG&A in the quarter as you'd expect.
Got it thank you.
Thank you.
Our next question will come from Rob Wertheimer with Melius Research. Please go ahead.
Yes, hi, good morning, everybody.
<unk>.
So I had I guess two on transit one short and one long term just short term just any comments on it sounds like backlog is progressing pretty well, but on transit customer sentiment on uncertainty in Europe with that.
Anything perhaps stuff has been delayed and thats pent up but just any comments on that short term demand picture around the backlog and then second.
Just a more structural question. This is a narrowed focus over the years.
<unk>.
On transit what is the ceiling on wins on market share on just how the competitive balance.
It's playing out and I will stop.
Okay.
Say ridership transfer continue to be uneven across various markets. There, we're not seeing any signs of slowdown of the market.
I think to some extent the current crisis favors rail as the energy intensity of rail is a fraction of viewers compared to passenger cars or.
Well you have been tracking to the freight segment.
I think auto element I would mention is certainly there.
But a lot of parts of the world. The hybrid work model May also increase demand for inter city trains.
So on one side infrastructure spending continues to be a positive with governments investing in rail.
So youll see that in the short term, we could continue to see some delay in project execution due to supply chain disruptions, but.
Largely the fundamentals of the business.
Remained the same remained strong consistent with what you might have heard from auto customers and Oems in that sector.
Perfect and then just any comments on competitive balance of your backlog has grown in line market share is holding growing contracting.
I think we have largely been holding.
Market share positions at of course, various product line by product line I think one of the things we made it clear upfront was really working towards the quality of the backlog, which has improved over the last couple of years and that comes down to also are making some of those choices and working in that direction. So we're.
We continue to to improve those numbers.
Alright, thank you.
Thanks.
Again, if you have a question. Please press Star then one our next question will come from Allison <unk> with Wells Fargo. Please go ahead.
Hi, Good morning, good morning Allison.
Just wanted to go to digital electronics, obviously that the chip shortage is certainly impacting our growth. There is there any way to quantify what that headwind to growth has been for digital electronics and then as you look there are obviously, a volatile supply chain environment still but do we expect those chips, where do you start to ease or you're building inventory there just any color.
Yeah. So I'll say two things I think we've made some decisions last year in terms, while trying to anticipate some of this but the lack of.
Our computer chips have had a significant impact for the business in the year, we still expect that business to grow.
I think some of the good signs are tied to the double digit order growth you saw last year. Some of them were really multiyear agreements. We saw again, a strong book to bill in the first quarter, which was above <unk> for the business I think again, a focus area for our teams to make sure that we continue to drive component.
Looking into 2022 with additional orders and I think you ought to comment I'd make is North America continues to be slow.
Despite of some of the announcements here would make but we're continuing to gain momentum internationally. I think there is some significant opportunities tied to oil.
PTC adoption internationally.
Some of the auditor technology that we have.
Great and then just.
High level question wanted to ask about pushback I, often get this local and parking and the storage number for the railcars coming in is that it just being you know Matthew or any improvement is being masked by the rail service challenges like that's my room, we're seeing those numbers.
Any high level color from your perspective, what you're seeing is there a real demand behind what's going on or does it feel like a temporary surge at this point just any thoughts there yeah. Let me start with what we're seeing and this is broad and it's more than the North America market.
If you think about freight internationally I think across our key geographies, we see demand.
Really tied to commodities flow. So think about volume dynamics are positive. If you look at some of the data that we shared in both counts extend in India. I think we have inquiries for new equipment to be delivered in Africa. We have a number of projects under discussion in Australia in Asia as well as a function of that even despite a.
The volume drop you saw in Brazil, I would say trends are positive types of the mid long term and new concessions.
You mentioned North America, I think we see sequential improvement on parking of both freight cars and locomotives I think the expectation there is that.
The investment will continue in terms of customers needing reliable and efficient power after soft because of some of the things that.
That we described and we certainly expect carload to continue to improve throughout the year. So that's that's maybe just with regards to that part I think I've made some of the comments on transit, but this was broader than I think North America, and I think that goes into some of the comments I made about really the momentum.
Although we saw in the quarter again with regards to the growing backlog.
Great. Thank you very helpful I'll pass it along.
Thank you.
Our next question will come from Matt Alcott with Cowen. Please go ahead.
Good morning, Thank you Raphael I think the average content in locomotives.
Locomotives in North America prior to GE might've been around $100000.
Range.
Can you give us an update on where you see the content opportunity.
Going.
Once there are orders in North America again as it relates to diesel locomotives and then also on <unk> can you remind us how.
How much of the components content on the flex drive is actually some websites legacy.
Versus.
Syed suppliers.
So I'll start with the flex drive, which I think.
As being a new product really provides that opportunity for us to bring the full integration of the suite of products, we have and translate that to ultimately value for the customer. So we have a very significant opportunity of expanding that number there.
When you think about.
I'll call are.
Im going to use the word legacy products, we have the opportunity to grow that as well we've been doing that in the international markets. Some of that's going to be dependent on the sizes of fleet customers are looking at and really making sure that as you introduce some of these components. It comes with scale and it comes with.
Although the right support from our services.
Pay ability are behind it.
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But youll see that.
Ultimately reflected on digital opportunities, which will.
We will continue to grow here.
You've seen some of the numbers we've highlighted in terms of the momentum in orders for that business.
Okay. That's helpful. And then one other question on the consolidation front I think before GE the range was.
Two are one to three.
Bolt on acquisitions per year.
Should we expect you guys to ease yourself back into that kind of pace eventually.
And can you give us some update on any potential opportunity as your <unk>.
Now is the pool of potential targets at your.
You are examining.
Anything on the <unk>.
M&A.
Are the consolidation front would be helpful.
I'll say, we're continuing to explore acquisitions, we're going to be opportunistic here, it's got to come with the right return on investment so.
This is not about.
The number of acquisitions that we did this about really value creation.
Really very consistent with the capital allocation framework that we shared.
With you guys during Investor day right.
Right.
Got a very robust process at looking at the opportunities.
And.
Again, it's not one to three or how many it's the quality how accretive they are and how on strategy. They are I think Nord coal, which we did.
About a year ago at this time is a great example of the value that we can drive through our M&A activity and more recently, we just had one with being a vision and certainly mizzou at the end of the year. So we feel very good about where we're at as well as our pipeline as we look forward and it certainly is a priority for the company to continue to do accrete.
And many of the transactions.
Is it safe to assume that's right as the priority when it comes to evaluating M&A.
I think the priority is defined vein good quality accretive deals that we can we can grow beyond what the previous owner was able to do to drive overall value for the company.
Thanks, So much guys appreciate it.
You bet.
This concludes our question and answer session I would like to turn the conference back over to Kristine Kubacki for any closing remarks.
Thank everybody for your participation today, and we look forward to speaking with you next quarter. Thank you goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.