Good morning and welcome to Wabtec Q1 2021 Earnings Call. All participants are in listen only mode. After today's presentation, there will be opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the conference over to Ms.
Christine Gabacki, Vice President of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to Wabtec's Q1 2021 earnings call. With us today are President and CEO, Rafael Santana CFO, Pat Dugan and Senior VP of Finance, John Mastalerz. Today's slide presentation, along with our earnings release and disclosures were posted on our website earlier today and can be accessed on our Investor Relations tab on wabtec corp.com. Some statements we're making today 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. We appreciate you joining us today. Turning to Slide 3, we continue to see a recovery across the global freight and transit rail markets with North American freight volumes and equipment utilization sequentially improving in the Q1 and investments in transit against our strategic plan are reflected in our Q1 results. Total sales for the quarter were $1,800,000,000 This was largely driven by international freight markets, services and a recovery in transit, but offset by continued weakness in the North America OEM market. Adjusted operating margin was 15.1% driven by lean initiatives, cost actions and favorable mix from mining and mods.
Cash conversion was strong with cash flow from operations of $292,000,000 Cash generation was due in large part to good working capital management, allowing us to deliver on our financial priorities, including strategic acquisition of Northco, which I'll touch upon more in a moment. Total multiyear backlog was $21,700,000,000 up sequentially over the prior quarter, providing us better visibility into 2021 beyond. Overall, we ended the quarter with adjusted EPS of $0.89 a strong reinforcement that our teams are continuing to take the necessary steps to control what we can deliver long term growth of the company and increased shareholder value. In the area of Synergies, we're on track to deliver the full run rate of 2 $50,000,000 in Synergies this year, and we have positioned the company for long term profitable growth. In the Q1, we exited all shared service agreements stemming from the GE Transportation merger ahead of schedule.
This was a tremendous execution by the team on a complex transaction. In addition, we continue to take aggressive actions on This includes reducing total operational square footage by 5% since January of last year, and we will further reduce our square footage by an additional 2% for the remainder of 2021. Moving forward, we'll continue to drive additional cost reductions through lean initiatives and balance Our focus on execution with strategic investments in high return opportunities that drive long term profitable growth. You saw that with our recent execution of NORTHCO, which is a leader in the maintenance of waste space with 60% of its revenues coming from aftermarket services and a significant installed base of over 5,000 units. We really like this business and its leading edge technologies.
It opens up significant opportunities to domestically and internationally in the growing maintenance away segment, while driving long term profitable growth. Integration activities are already underway, and we expect this strategic acquisition to be accretive to earnings, cash flow and return on invested capital in 2021. On the commercial front, We're also focused on driving growth and won some key orders in the quarter despite a challenging environment. This included a significant deal for our FPL advantage product, which is a fuel upgrade kit. As we have shared before, there are more than 10,000 FTL locomotives running globally.
With this next gen technology, We're opening up a multimillion dollar pipeline of opportunity that is helping customers drive down fuel consumption by up to 5% as well as drive down emissions. That means for a single locomotive burning 250,000 gallons of fuel, It can translate into a $25,000 in savings per year. Also, when it comes to technology differentiation and sustainable transportation, we completed a significant operational milestone with our Flex Drive battery electric locomotive, testing it in revenue services with BNSF across more than 13,000 miles of track. Through this demonstration, the Flex Drive was able to reduce both fuel consumption and emissions by more than 11%, a game changer in decarbonizing rail. We continue to see growing interest in this NextGen technology from customers in both North America and internationally.
And we expect our battery electric locomotive to become an important area of growth for the company over the long term. In Digital and Electronics, We're also leading the way in rail safety and utilization. We closed a key order for positive train control internationally, And we are encouraged by the strong order pipeline for international PTC expansion. Finally, we had a solid quarter in transit, winning new brakes, doors and HVAC contracts in India, Taiwan and France, including a significant order for platform doors and gates at over 30 train stations in Marcell. Overall, our order pipeline continues to strengthen, driven by multi year orders in freight services, equipment and digital electronics.
Based on this factor and orders, Wabtec is in a strong position to drive profitable growth and perform for our shareholders, for our customers and for our employees. With that, I'll turn the call over to Bass, who will review the quarter, segment performance and our overall financial position.
Thanks, Rafael, and good morning, everyone. We had a solid operational start to the year Despite the challenges in our North America OEM markets and ongoing disruption from the pandemic, we demonstrated our ability to deliver on synergies, Generate cash flow, invest for the future and position Wabtec for profitable growth. Turning to Slide 4, I'll review the Q1 in more detail. Sales for the Q1 were $1,800,000,000 which reflects a 5% decrease versus the prior year, driven by lower North America OE freight markets as a result of the disruption caused by the pandemic. For the quarter, operating income was $192,000,000 and adjusted operating income was $277,000,000 which was down 9% year over year.
Adjusted operating income excluded pretax expenses of $85,000,000 of which $70,000,000 was for non cash amortization and $16,000,000 of restructuring and transaction costs related to the acquisition of Norco, along with restructuring due to the 2021 locomotive volumes and restructuring in our UK operations. Adjusted operating margin was 60 basis points lower than the Q1 last year, but up 110 basis points from the 4th quarter. Versus last year, adjusted operating margin was impacted by Under absorption costs at our manufacturing facilities stemming from fewer locomotive deliveries as well as sales mix impacted from lower digital electronics and a higher level of transit sales. At March 31, our multi year backlog was $21,700,000,000 up quarter over quarter. Our rolling 12 month backlog, which is a subset of the multi year was $5,700,000,000 and continues to provide good visibility into the year.
Looking at some of the detailed line items for the Q1, adjusted SG and A declined 2% year over year to 224,000,000 This was the result of cost actions during the downturn and excludes $11,000,000 of restructuring and transaction expenses. SG and A expense benefited from headcount reductions and the realization of synergies. For the full year, we expect SG and A to be up about 5% versus 2020, driven by the normalization of costs following the COVID disruption. That said, we will continue to aggressively manage headcount and structural costs. Engineering expenses decreased from last year.
This was largely due to the lower locomotive volume outlook for the year as well as some changes in project timing. Overall, our investment in technology is still expected to be about 6% to 7% of sales. Amortization expense were $70,000,000 For 2021, we expect non cash Our adjusted effective tax rate was 27.5%, which was higher than year over year due to certain discrete items during the quarter. We expect a full year 2021 effective tax rate to be about 26%. The Q1 GAAP earnings per diluted share were $0.59 and adjusted earnings per diluted share were $0.89 Now let's take a look at the segment results on Slide 5.
Across the Freight segment, total sales decreased 9% from last year to 1.2 In terms of our product lines, equipment sales were down 36% year over year, mainly due to 0 deliveries in North America, which resulted in roughly 50% fewer locomotive deliveries versus last year, a dynamic that unfortunately persists. However, mining was a bright spot with units and revenues up double digits during the quarter. In line with improving freight traffic, our service Sales improved a solid 13% versus last year and was up 3% sequentially. This was largely driven by Strong modernization deliveries and higher aftermarket sales from the unparking of locomotives due to the extreme weather in the quarter. I'd note that the timing of mod deliveries vary from quarter to quarter, but we expect our services sales to improve with the Gradual recovery in freight volumes.
Digital electronics sales were down 10% year over year as orders shifted to the right in North America Due to the COVID disruption, yet we had another quarter of strong momentum for multi year orders and continue to see a significant pipeline of in our digital electronics product line as customers focus on safety and improved productivity. Components sales were down 8% year over year. This is compared to a 45% lower railcar build year over year, demonstrating within our components business. We continue to see signs of improvement in demand for aftermarket components as more railcars come out of storage. Rate segment adjusted operating income was $214,000,000 for an adjusted margin of 18.1 percent.
Versus last year, the benefit of synergies and cost actions were offset by sales mix as well as under absorption due to lower locomotive deliveries. We will continue to execute on our synergy plans and further improve costs to drive margin improvement. Finally, Freight segment backlog was $18,000,000,000 up from the prior quarter on broad multi year order momentum across the segment. Turning to slide 6, across our Transit segment, sales increased 3% year over year to $647,000,000 driven largely by steady aftermarket sales and favorable foreign exchange offset somewhat by the disruption from the COVID-nineteen pandemic. OE sales were roughly flat year over year, demonstrating continued investments in green infrastructure.
Aftermarket sales were up about 5% from last year. We expect aftermarket sales to continue to improve as transit ridership and services increased globally. Adjusted segment operating income was $79,000,000 which was percent year over year for an adjusted operating margin of 12.2%. Across the segment, we continue to drive down cost and improved project execution, demonstrated by our good operating performance despite a challenging environment due to the pandemic. We are pleased with the momentum underway and the teams are committed to execute on more actions to drive 100 basis points of margin improvement for the segment in 2021.
Finally, Transit segment backlog was $3,700,000,000 Now let's turn to our financial position on Slide 7. Despite a seasonally challenging quarter, we generated $292,000,000 of operating cash flow demonstrating the resiliency and quality of our business portfolio. Cash flow was driven largely by good conversion of net income and focused working capital management, including a $93,000,000 incremental benefit from accounts receivable securitization, which provides attractive financing and provides liquidity. During the quarter, total CapEx was $27,000,000 In 2021, we expect CapEx be about $180,000,000 or about 2% of our expected sales. Overall, our strong cash generation allowed us to execute on strategic plans and capital allocation priorities, including the strategic acquisition of Nordco, which will drive Profitable growth for Wabtec.
Our adjusted net leverage ratio at the end of the Q1 was 2.7 times and our liquidity is robust at $1,700,000,000 You can see in these results, Our balance sheet remains strong and we are confident we can continue to drive solid cash flow generation, giving us the liquidity and flexibility to allocate Capital to grow shareholder value. With that, I'll turn the call back over to Rafael.
Thanks, Pat. Turning to Slide 8, let's look at some of the market dynamics by segment. Overall, we're seeing in regions like India. This aligns with what you've heard from our customers as well. While we continue to work Through the trough in the OEM North America market where new local orders remain stagnant, we are encouraged by the sequential improvement in freight volumes And a broad recovery across the agriculture, intramodal and industrial markets.
Locomotive parkings, After peaking to a record high in 2020, are improving as a result of increased freight traffic and demand stemming from During the quarter, we expect demand for reliability and productivity to improve as railroads continue to recover. This will put us in a position of strength across our freight portfolio. When it comes to North America railcar builds, railcars are coming back into use. More than 20% of the North American railcar fleet remains in storage, but it's back to pre COVID levels. Industry orders for new railcars remain weak and forecast We expect long term revenue growth in several of these markets going forward.
And in mining, market conditions are also improving. Transitioning to the transit sector, ridership is uneven but recovering as economies open up. We are watching short term dynamics as the pandemic evolves in several geographies, including India and Europe. Overall, the long term market drivers For passenger transport remains strong and infrastructure spending for green initiatives continue to be a focus, especially as governments globally churn to rail for clean, safe and efficient transport. Turning to guidance for the year, we are updating our sales guidance to $7,700,000,000 to $7,900,000,000 and updating adjusted EPS guidance to a range of $4.05 to $4.30 This largely reflects upside from the acquisition of Northco, our operational execution to date and visibility to backlog.
Consistent with our initial forecast for 2021, With more growth weighted to the second half of the year, we expect 2nd quarter earnings only slightly higher than the Q1. This is in line with the positive and gradual trends in our freight markets. That said, we are Seeing disruption from the resurgence of COVID, especially in a key region for us like India, and we will continue to take swift necessary action as conditions evolve. Finally, we remain confident in delivering strong cash generation for the year as well as margin expansion to prioritize cost actions. Turning to Slide 9 and to conclude, I'm proud of the strong execution by the team in the Q1 despite a challenging environment.
As we go forward, We will continue to lean into the strong long term fundamentals of the company and remain committed to executing on our strategic plan. This includes reducing costs and executing on synergies, driving margin expansion across our freight and transit segments, Generating strong cash flow and delivering long term profitable growth. As we've said before, Wabtec's mission holds a larger purpose To move and to improve the world and our teams globally live up to this mission every day. After demonstrating a strong performance In 2020 and in the Q1 of 'twenty one, I'm confident that this company will drive profitable long term growth and be a leader in transitioning our customers and the industry to a more sustainable future. With that, I'll turn the call back to Christine to begin the Q and A portion of our discussion.
Thank you, Rafael. We will now move on to questions. But before we do and out of consideration for others on the call, I ask that you limit yourself to one question And one follow-up question. Operator, we are now ready for our first question.
We'll now begin the question and answer session. First question comes from Jerry Revich, Goldman Sachs. Please go ahead.
Hi, everyone. This is Ashok Sivamohan on Jerry Rebich. With investments stepping up in the decarbonization product portfolio, I'm wondering if you can provide any details on the proportion of total R and D related to Next Generation Fuel Technologies?
We're continuing to step up investments there. I think We've been clear around the 6% to 7% range of investments tied to the overall sales. We're very much committed to lead the path here to decarbonization. We're working on a number of areas with customers. Those include really developing some of the elements of upgrade kits.
We're working on a number of areas to introduce bio Renewable fuels, but taking all the way to electric. And we're also, of course, working along the lines To lead in fuel cells and that's kind of the stairway we see on progressing through it.
Great. And then I'm just wondering if you can comment on the pace of mods activity and sort of how that's Trending in 2021, how that compares to 2020?
We've had a significant step up, healthy double digit growth. You see that In the Q1, we have significant positive from that, and we believe mods will continue to be an area of growth For us, it's clearly a pathway for us to introduce what I call upgrades into the fleet and
Thank you. Next question is from Justin Long of Stephens. Please go ahead.
Thanks and good morning.
Good morning. Hey, good morning, Justin.
I wanted to ask about the guidance and I was curious if you could share the revenue and EPS impact that you're baking in from the Nordco And if you set that acquisition aside, can you just talk from a high level about any other changes that you've made to some of the assumptions that are underlying that 2021 guidance?
Let me start, and I'll let Pat continue. But we have narrowed the guidance. We have raised the midpoints given the strong operational start to the year. I think in the quarter, the positives include mining, execution of modernizations and we continue to see strong numbers around locomotives being unparked Yes. And we also have the acquisition of Northco.
At the same time, Justin, we're continuing to see supply chain headwinds With disruptions driven by COVID, I think most impactful is situation we currently have in India, which we're falling on, But certainly headwinds when it comes to transportation costs and commodity prices. Overall, all of that is Reflecting the guidance we've provided, I'd say overall momentum is positive and we are continuing to see a gradual recovery across most of our end markets. Yes. Hey, Justin. So, this is Pat.
So,
we're similar to what we had disclosed when we did the earnings the press release on the Norco acquisition about $175,000,000 of sales on an annual basis And $40,000,000 of EBITDA for on an annual basis. So we bought it basically at the end of the Q1, beginning of the Q2. So kind of pro rata for the rest of the year. The EPS impact, we've talked about it around $0.06 for the full year. That's included in the guidance and gave us a lot of the confidence obviously to increase the bottom end of the range plus Some of our good performance so far, ultimately, where we guided today.
Okay, great. That's helpful. And secondly, I wanted to follow-up, Rafael, on something you mentioned a couple of times on part Locomotive, could you give us a sense for how locomotive utilization has recently trended and what percentage of the Fleet is still in storage today. And then also as you answer that, I'm curious what percentage of that Stored fleet you feel like is actually usable because on the railcar side, we always hear that we're effectively fully utilized with call it mid teens, Maybe low teens percentage of that fleet in storage. So we'd love to get your thoughts around that.
Yes. Just an overall, the industry is not back to pre COVID levels yet from just the locomotive parking perspective. We feel good with the progress especially regarding our fleets. I think we're ahead of the Overall industry, which is a positive for us when we look at our overall fleet operating globally. So that's certainly a positive trend.
So you Still have a little bit, I think, left from units that were parked, what are called post COVID. Now when you look at the units that were parked pre COVID, Those units, it's a smaller number that it can potentially be utilizing here. So I think the Momentum is positive. We're going to continue to watch that closely here, especially as we go into the second half of the year, and we're especially pleased with The performance we're having with customers in terms of reliability and availability, which ultimately is really the differentiator for us to winning more share of wallet, so positive. The last piece I would mention, you've probably seen a number Looking for what I'll call spare power available out there, including some recent announcements.
I'd say the good news is those are Wabtec locomotives. It's a positive for us.
Great. That's helpful. I appreciate the time.
Thank you.
Thank you. Next question comes from Scott Group of Wolfe Research. Please go ahead.
Hey, thanks. Good morning, guys.
Good morning, Scotty.
Just going back to the guidance here. So it looks like you're assuming the second half is about 30% higher than the first half of the year from an earnings standpoint, give or take. And we don't typically see that level of seasonality. Can you just Help us understand what's driving such a big ramp in the second half of the year.
Scott, I think consistent with the initial forecast we have for 'twenty one, we have more growth weighted to the second half of the year. I think In that regard, we're continuing to see sequential improvements in the Q1. If you think about the orders, the book to bill, it's increased to 1.2. Some of these are multi year orders. While there's an impact in 'twenty one, the impact goes beyond 'twenty one.
I think our pipeline of deals has continued to strengthen. So I think there's just good momentum coming out of a tough year being last year and we have also good Our 12 month rolling backlog is up about 3.5% And we've got good momentum and the focus is really on convertibility of our pipeline of orders into this year and moving forward. I think just with regards
to the
Q2 maybe is we as previously discussed, I think we've got some elements of volatility, especially tied to COVID disruptions. We think those are contained Very much into the quarter, but that's the situation we'll continue to monitor, especially with regards to India, which is an important market for us.
Okay. And just to follow-up there. So is the second half more about transit or freight or domestic versus international? Just Just some additional color would be great.
I think international markets continue to be robust if you think about it, Just in terms of sales, I mean, we've grown our business more internationally than In the U. S, so I think largely the North American market is going to be tied to the continued on parking On locomotives internationally, I think growth has been, I'll call, more robust in some ways. The team is very much focused on convertibility. We've got some very important opportunities around the OE side that the team is working to convert Between here, 2nd and third quarter. So those are critical elements of continuing to build profitable growth I had.
Would you say international is back at pre COVID levels?
I'd say largely, when you think about the services front dock link, Scott, I think there is room for, I'll call it, more momentum forward. And if you think about it On how much of our business was, let's say, last year international versus now. And I mean, it's gained about 5 basis points in terms of momentum there. So if you think about it, we're probably at a rate close to 65% in the Q1 with international. So that gives you a sense of, I'll call both the strength there, but the weakness in North America.
Next question is from Chris Athery of Citi. Please go ahead.
Hey, thanks. Good morning, guys. Wanted to ask about freight and maybe how we can think about in the context of that sort of ramp in the second half of The year, how can you think about sort of incremental margins in that business? I know you have the synergies that you're working through, but fixed cost absorption obviously has been one of Challenges for you as the volume and revenue dynamic has been more challenging over the course of the last several quarters. So that's something where we could see potentially a somewhat large Snap back as we move into the second half of the year?
Let me answer you in 2 ways. Number 1, We are committed to, I'll call, improve margins on both the freight and the transit side. On the transit side, I think we've been more clear in What we expect that to be, and the team is certainly working towards driving 100 basis points. We expect improvement on the freight side. We're working through some of those dynamics here, taking the necessary actions.
When it comes to the OE side, There's probably really not much opportunity in terms of really gaining volume for the year, But there's certainly opportunity when it comes to the services side. And we also have mining really improving Overall, so mining is also a positive year for us into the year. So that's maybe the way to think about it. Yes. Chris, what I keep Reminding everybody is that quarter to quarter there can be some margin impact from
the timing of projects And the type of deliveries, but you really need to look at the full year margin and We talked about a transit improvement explicitly for the full company, at least a 40 basis point improvement in overall margin for as we progress through the year, That's been driven by a combination of synergies being achieved, of the volumes coming back, Offset a little bit by some cost and absorption items and normalization of our other costs in the SG and A. But that overall improvement really is a year view and a full year view and should be considered.
Okay. That's helpful. I appreciate that. And then just picking up on the synergy comment, obviously, you have a target for this year. As you think beyond What do you think the opportunity is?
Obviously, you've had the combined company now for a period of time, had the opportunity to kind of go through and see The opportunities are and obviously it's a challenging macro backdrop to say the least. As we go into 2022 and maybe get on more firmer footing, can you give us a sense of what you think the
I think I'll qualify those beyond this year less About synergies, I think we're really working hard to make sure that we progress with a lean culture approach, Yes, and I think there is a lot to be done there. I think we've started in a number of key and critical sites and think more in terms of how we think about productivity gains, how we continue some of the work around Really rationalizing our footprint, doing more. I think some of well, you think about the acquisition of Northco, I think it provides us A good opportunity to expand internationally and utilize that footprint at sports customers and volume recovery will also I'd say a positive in that regard. So it's all around productivity, efficiency, Really a lean mindset to make sure that we drive productivity. Yes,
I would just add to that as we've been we've tried to be very disciplined about how we look at And communicate that because it was such a big part of the strategic rationale of putting the companies together. But truthfully, The DNA of the company has always been about productivity gains, lean initiatives, all the things that Rafael just referred to. So we just continuously look at how we can improve margin going into future years.
Largely, if you think about our sites, there has been a focus here 2 dates, especially 15 of them. We got to expand that to really drive broader impact in terms of productivity moving forward.
Okay. That's helpful. Thanks for the time. Appreciate it. Thanks, Hugh.
Thank you. Next call Question is from Allison Polak of Wells Fargo. Please go ahead.
Hi, good morning. Just turning to the digital side, it sounded like your comments suggested an incredibly active market and the guidance for flattish growth certainly Leads to that as well. Could you maybe help us understand the progression of digital through the year to get to that flattish? I mean, it sounds like it's going to be a significantly stronger 2nd half for you, is this something where the time from order to, I would say, implementation is pretty short that gives you that comfort here?
So, Allison, I think we continue to see a strong commitment here from customers. We certainly saw that internationally. Our book to bill was Strong on both Q4 last year and Q1 this year. So that just provides backing to what I just said. But customers, when you look at last year, they pushed out some of those investments due to COVID.
With that being said, Both efficiency, productivity and safety remain an imperative. We expect those multiyear orders to continue. The team is very focused on convertibility for the year at this point. So with the strong book to bill, we saw some of that impact beyond this year. So Really a lot of focus on convertibility for this year.
At this point, we're continuing to invest in the business. That business will continue to provide long term growth for us. So I think there's more an element here of delay. And keep in mind also The element of locomotive shipments, whenever we ship locomotives into North America, that goes with a significant A number of what I call digital software and hardware. So and with that drop, we're not seeing that.
So that's another element of the impact that I just want to highlight.
Got it. Thank you. And then just on the lines of locomotives, the FlexDrive, you noted it, that you completed the test in revenue service. You mentioned some interest in the locomotive. How should we think about those in terms of the quality of the inquiries?
Is this something that could be Revenue generating in sort of 'twenty two or is it more of a 'twenty three time frame for you?
Allison, interest is strong. We have proposals out. There would not be any impact from that year specifically, but we expect Battery Electric to be part of long term growth with the company. And so we see a number of areas where that could be applied. So we're having some Strong discussions with customers and this really combines with a strong focus from the ESG side.
And I think The Flex Drive is very unique product to address these challenges. So I do expect that momentum to continue, And we're working with customers on a number of pilots out there.
Great. Thank you.
Thanks.
Thank you. The next question is from Matt Elkott of Cowen. Please go ahead.
Good morning. Thank you. So I think your backlog your total backlog increased By $80,000,000 sequentially from December, but your 12 month backlog increased by about $186,000,000 So I was wondering if There was some pull forward from the out years, or if he has had any Cancellations in the out years that were more than offset by new orders for the next 12 months, if that makes sense.
Let me start with the end part of your question. So we've not had cancellations. I think we're continuing to see momentum on both segments, whether it's freight and whether it's transit. Of course, there's an element of projects into our business, which can lead to some lumpiness quarter by quarter, But momentum is good. We see that with the book to bill.
And quarter to date, we've also had, I think, a good momentum On that trend,
that's kind of it. Yes. So I would also there's an element of FX that impacted the backlog number. And if you imagine that our international operations are more Long multiyear projects and the international impact of those can be spread out over a longer period of time and we have foreign exchange hurt our backlog number by about $170,000,000 And so I think that, that FX impact is more overly weighted into the full number, not the 12 month number.
Got it. That's helpful. And then just for my second question, it's been over a year now since the beginning of the pandemic And there were a lot of concerns about the long term prospects of transit, Pat and Rafael. Now Do you have any more clarity from your conversations with customers about a potential secular shift in transit long term?
We're seeing both customers Government is very committed to transit overall. So with that just reiterating, no cancellations of orders, received projects moving forward. You see very much systems continue to operate and that's shown in the resilience of our service numbers. On the top of that, I think we're continuing to see just transit part of the solution in terms of How you decarbonize things moving forward? I think there's a number of improvements being thought through, but Strong fundamentals for that business moving forward.
Thank you. Next question is from Harry Rose of Bank of America. Please go ahead.
Yes. Hi, good morning. So you've mentioned COVID impacts in India, and obviously, we're seeing regrettable surge in cases there. Maybe you could go into a little more detail around kind of what you're seeing there, what you think the potential impact could be, and if you've had any discussions with customers there. I know India has been a focus area in terms of the growth, do you see that kind of shifting the timeline there or the prospects?
Well, so first, no really shift in terms of the prospects as we look longer term. In fact, if you think about Volume freight volumes in India, it's actually positive year today. So just to give you a perspective. So this is really more tied to Disruptions associated with lockdown certainly impacting our suppliers, sub suppliers, our customers as well. We're following up that closely to this point.
We think we see it more as an impact potentially to the quarter, but we'll continue to monitor Take the necessary actions here and we will report on any relevant changes.
Got it. Understood. Very helpful. And then just if we could return to kind of the North American market, maybe if you could give your Latest thoughts on where we are in terms of emerging from a cycle compared to past cycles. How do things look in terms of the timeline?
Do you think by 2022, 2023, we could get back to kind of a more normalized rate of demand from customers? Or do you see this kind of lingering for longer?
It's good to see the momentum here. We're walking into the first half of the year. We are working with Much closely and watching on that momentum towards the second half of the year, which I think will be determinant in terms of how customers will think about their fleet Which will include continuing modernizations. There are certainly opportunities here for Our parts as they continue to consider on parking of units and new locomotives is also going to be part of the discussions with customers. So I see that largely as a second half discussion based on continued momentum here through the first half of the year.
And do you typically see between locomotives and railcars, do you typically see one piece of that business lead the other?
I think it tends to be connected, but I mean, there could be variances just tied to The levels of parking, if you think about freight cars, we're already back to pre COVID levels. If you think from an overall Locomotive fleet, we're not yet back to pre COVID level. So there could be some elements of delays there, which are Sometimes really driven by just think about velocity and dwell times in the network, which Ultimately could be very determinant factors on these.
Thank you. Next question comes from Saree Boroditsky of Jefferies. Please go ahead.
Hi. Thanks for taking the question. Locomotals were down almost 6% in the quarter and you noticed largely due to North And shipments, you've been positive on the long term view of international locomotives. But just for clarity, were international locomotives Also down in the quarter and should they decline for the full year?
I think we're seeing more of a, I'll call, Growth opportunities when I think about the international markets. So to your point, I think largely the impacts here in the quarter was driven by dropped by 50% on those. I think if you look at our especially our equipment business, I think you've got to keep in mind That some of that we've been able to offset by really double digit growth in mining. So that's been a positive and I think even more significant growth in our mods business. So there's opportunities there.
So, Sari, just to Specific to your question about the variance quarter over quarter or year over year is that we had A large number of international loco shipments in Q1 of 2020 specific to the Middle East, I think we've talked about this at various times. So We had an overweighting of the Locos in the Q1 of last year versus this year, But our full year locomotive phasing and for international purposes are going to be largely Same as for the full year.
And we've got long term orders there tied to some key markets, which includes India, Includes Brazil, includes Kazakhstan. So that's the other element to keep in mind.
Great. And then could you just provide a little bit more color on freight margins? You've done a great job realizing synergies that are obviously being impacted by under absorption. When do you think you could get back to
Yes, I think I don't know that we've talked about any kind of breakeven or kind of contribution margin impact. I think the way to look at it is that last year the decremental margin on the lower volume was in the low twenty And I think that you would imagine with you would expect that we would have a similar kind of impact with volume recovering. But you always have to consider the mix in the timing and projects, how that volume Comes back. Obviously, services and parts and modernizations really are and digital electronics tend to be Positive mix. Some of the OE elements of this can be below the company average.
Ultimately, what we're focused on is that, as we talked about earlier in the call, is that we're achieving synergies, Driving lean initiatives, productivity gains and all the normal Continuous improvement type activity that Wabtec's always focused on.
We're committed to improve margins across Wabtec, and that includes on both segments for this year. And that's really what we're driving forward to go into next year as well.
Okay. But just given that serves parts and mods and digital are all positive to the margin mix and you have synergies, is it fair to say that you should able to reach 2019 margins on a lower revenue base?
I think at this point, it's To give that kind of guidance and when we would get back to 2019 margins a little early, but we're committed to that driving that margin up. I think that it's early in 2021 and we see a lot of really good things happening With the volume recovery, and I think we've considered that in the guidance for the year.
Okay. Thanks for taking my questions.
Thank you. Thanks.
This concludes our question and answer session. Now I'd like to turn the conference back over to Ms. Christine Kovacki. Please go ahead.
Thank you, Nick. Thank you for everyone's participation today. We look forward to speaking with you next
Conference has now concluded. Thank you for attending today's presentation. You may now