Wabtec Corporate (WAB) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.25.13 | About: Westinghouse Air (WAB)

Westinghouse Air Brake Technologies (NYSE:WAB)

Q2 2013 Earnings Call

July 25, 2013 10:00 am ET

Executives

Timothy R. Wesley - Vice President of Investor Relations and Corporate Communications

Albert J. Neupaver - Chairman of The Board and Chief Executive Officer

Raymond T. Betler - President and Chief Operating Officer

Alvaro Garcia-Tunon - Chief Financial Officer and Executive Vice President

Analysts

Scott H. Group - Wolfe Research, LLC

Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Matthew S. Brooklier - Longbow Research LLC

Gregory W. Halter - LJR Great Lakes Review

Operator

Good morning, and welcome to the Wabtec Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim Wesley. Please go ahead.

Timothy R. Wesley

Thanks, Jessica. Good morning, everybody. Welcome to our second quarter earnings call. Here with me are Chairman and CEO, Al Neupaver; our President and COO, Ray Betler; Alvaro Garcia-Tunon, our CFO; and Pat Dugan, Senior VP of Finance and Corporate Controller.

I will make our prepared remarks, and then, of course, we'll be happy to take your questions. During the call, we will make forward-looking statements, so please review today's press release for the appropriate disclaimers.

Al, go ahead.

Albert J. Neupaver

Okay. Thanks a lot, Tim. Good morning, everyone. We had another good operating performance in the second quarter, with record sales of $638 million and record earnings per diluted share of $0.77. Our backlog has held steady at near record levels at about $1.7 billion backlog.

Overall, our business is performing well in what is still a slowly recovering global economy. We've been successful, thanks to our diversified business model, our strategic growth initiatives and the power of our Wabtec Performance System.

We remain excited about the long-term growth opportunities in our freight and transit rail markets, which continue to be driven by several mega trends. Those trends are increasing global trade and urbanization, continuing need for infrastructure investments and the demand for more environmentally friendly technologies.

Today, we increased our 2013 EPS guidance based on our first half results and our current outlook. We now expect full year EPS to be between $2.98 and $3.03, with sales growth of about 8% for the year. This EPS guidance is about 15% higher than our 2012 results.

As we said last quarter, transit will drive our top line growth for the year. This is due to our strong transit backlog, both in the U.S. and internationally, as well as acquisitions that we've made in the transit market.

We expect freight revenues to continue to pick up into the second half. The second quarter comparison in freight shows the impact of lower freight car build, lower locomotive build, then the prior-year quarter and lower industrial sales.

Our guidance assumes the following: There will be continued slow growth in the global economy. There will be stable U.S. and European transit markets, with the emerging countries driving growth. Our transit revenues should grow based on our existing backlog of projects in the U.S. and internationally. We assume that U.S. freight traffic will remain stable, with OEM locomotive and car builds down 10% or more for the year. And lastly, we assume no major changes in foreign exchange rates, and that our tax rate remained steady for the remainder of the year.

As always, we will be disciplined when it comes to controlling costs, focused on generating cash to invest in growth opportunities and ready to respond decisively to any changes in market conditions.

I'd like to have Ray Betler discuss what we're seeing on our key markets now.

Raymond T. Betler

Thanks, Al. We continue to see stable transit markets in the U.S. and abroad. In the U.S., ridership is essentially flat over the last 12-month period. In 2013, North America transit car deliveries will be about 900 and bus deliveries about 4,500, both figures are the same as last year.

Transit funding in the U.S. is also stable at about $10 billion a year, about where it's been in the last several years. This stability in the North America market continues despite budget issues and uncertainties about the long-term Transportation Bill.

Outside the U.S., we're seeing stability in the developed markets and growth in the emerging markets. In Europe, for example, our transit markets remain stable because public transportation is so ingrained into their cultures. Currently, the largest transit opportunity in the world is actually in South Africa, where the country's passenger rail agency, called PRASA, plans to invest billions of dollars over the next decade to both upgrade and modernize their system. We hope to be involved in that project in a variety of ways.

Our growth in transit this year has been fairly broad-based, with a strong backlog of projects in the U.S. and elsewhere. Through the first half of the year, about 60% of our transit growth has been outside of the U.S.

Turning to the freight market. In NAFTA, rail traffic is up year-to-date. Total traffic is up about 1.3% compared to a year ago first half. This is driven by a 3.5% increase in intermodal, which more than offsets the 0.4% decrease in general traffic. The decrease in general traffic is due mainly to a 4.1% decrease in coal. Categories that have increased include petroleum products, aggregates and chemicals.

We still expect OEM rolling stock deliveries in 2013 to be lower than 2012. About 1,200 new locomotives were delivered last year. We expect around 1,000 to 1,100 this year. It looks like the industry will deliver about 50,000 cars in the freight car market. That's compared to 59,000 that were delivered last year in 2012.

In the second quarter, about 12,500 cars were delivered compared to about 18,000 in second quarter 2012. About 12,000 in 2013 first quarter. So second quarter orders were good at about 15,000, which drove the backlog to almost 74,000, which is the highest since 2007.

And for the first time in several quarters, tank cars represented less than 50% of new orders. So maybe we will begin to see other car types start to pick up.

Globally, freight traffic is also mixed. China's still growing, but not as fast as previously. And so that has ripple effect in some of the mining countries around the world like Australia, Brazil and South Africa where we can see some slight weakness.

And now, I'll turn it back over to Al.

Albert J. Neupaver

Thanks a lot, Ray. We continue to focus on growth as a corporation, as well as cash generation. Our priorities for allocating our free cash have not changed. We want to fund our internal growth programs first, acquisitions and return money to our shareholders through a combination of dividends and stock buybacks.

As you know, our board voted in May to increase our quarterly dividend by 60% to $0.04 per share. That's the third straight year we've increased our dividend. And the board also declared a 2-for-1 stock split in the form of 100% stock dividend. We think both actions were a strong statement of confidence in our future growth opportunities and strategic direction.

Our growth strategies also haven't changed. Global market expansion, aftermarket expansion, new products and technology and acquisitions.

Looking at our growth strategies from a global and market expansion standpoint, our sales outside of the U.S. were $310 million in the second quarter. That's 50% of total sales versus if you look at 5 years ago, we were only at about 33%.

Some of our new projects include a $21 million order for freight car bogie in Mauritania, $15 million order for electronic braking equipment in Australia and a follow-on order for 6 additional freight locomotives in Australia.

In the aftermarket expansion area, overall aftermarket sales were -- they ended up being 56% of our total sales at $356 million. That is a growth of 14% compared to the prior-year quarter. We look for opportunities to help our customers when they want to outsource non-transportation functions. For example, we expanded our Chicago service center last year so that we could provide locomotive maintenance, and the facility is already at capacity.

From the new product standpoint, we're always focusing on being able to improve the efficiency, the productivity and the safety of the railroads. New products represent about 1/3 of our total annual sales. We've won additional orders for locomotives from MBTA up in Boston. That was 13 units, around $70 million. This is a follow-on order from several years ago. These locomotives dramatically improved fuel efficiency, reduced emissions and lower life cycle cost.

They include many components and systems manufactured by other Wabtec units: FastBrake electronic air brakes, air compressors, event recorders, tread brake units, brake shoes, aftercoolers and radiators. Positive train control continues to be a growth opportunity for Wabtec. This quarter, we had sales of about $55 million. We expect that pace to pick up in the second half as we continue to work with the railroads and other industry suppliers that deliver an interoperable system. We feel that our 15% to 20% growth target for this year is within reach.

Earlier this week, we announced the PTC contract for North County in San Diego, where we will provide equipment and services for their installation of PTC. We expect to have additional opportunities to work with other transit agencies in the U.S.

From an acquisition standpoint, we did not complete any during the quarter, but our activity level remains robust.

I would like to now turn it to Alvaro that will talk a little bit about the financials performance in the quarter.

Alvaro Garcia-Tunon

Thanks, Al. Good morning, everyone. I'm always happy to review our financial results, which we are very pleased with for this quarter.

Sales for the second quarter were 5% higher than last year at $638 million, which is a record high for us. The growth was primarily driven by acquisitions, which overall are performing well.

Transit Group sales increased due to revenues from our backlog of existing projects, as well as acquisitions.

Freight Group sales, the results are a little mixed there. The sales increased 13% compared with the first quarter of the year, but were lower than the last year second quarter mainly for 2 reasons. The first is although rail traffic was slightly higher in the second quarter of this year, deliveries of new freight cars were lower by about 5,000 units. And also, reduced natural gas drilling activity has resulted in lower demand for our industrial heat exchangers that are used for gen sets in that market.

Turning to margins, where as you know, we're always striving to drive our operating margins higher. And I think the performance in this quarter was good. Operating expenses increased due mainly to acquisitions, but are still only about 12.6% of sales, just slightly higher than a year-ago quarter but slightly lower than the first quarter of this year.

For the quarter, operating income was a record $113 million or 17.6% of sales compared to 16.5% of sales in the year-ago quarter. The margin performance was driven by several factors, including higher sales. We'd like to take advantage of the leverage of the increased volume and benefits from the Wabtec Performance System.

Interest and Other were relatively stable. Interest expense for the quarter was $3.3 million, about the same as last year. Other income was about $400,000. This is always a small item. It's composed of several items. Sometimes it can be loss, sometimes it can be gain, and it's primarily paper FX from our foreign units.

The effective tax rate was as we had expected. It's about 32% for the quarter versus 33.7% last year but we had said earlier that it was going to be lower.

Remember, we also had a lower rate in the first quarter of this year. I think it was about 30% due to benefit from the R&D tax credit extension, which just passed at the beginning of the year. So our full year rate will be a little bit less than 32%. But going forward, we expect our tax rate for the remaining quarters of this year to be about the same or about 32% for the next 2 quarters.

Cash from operations. We've generated about $45 million year-to-date, which puts us slightly ahead of last year's pace. But one of our goals for the second half is to improve this performance. We think we can do better.

Working capital increased slightly in part due to the higher sales. At June 30, receivables were $488 million, inventories were $406 million and payables were $273 million.

Our working capital, excluding cash was about 18.4% of sales for the quarter versus about 15.8% at March 31. The primary reason for this difference was paying us some accrued liabilities and working down some contract repayments as we performed on those long-term contracts.

As our business has become more global and as we expand our sourcing programs in other low-cost countries, working capital tends to increase. But even so, we think there are plenty of opportunities to improve our performance, and we hope to generate additional cash improvement in the generation of additional cash going forward.

Cash and debt at June 30, we had about $215 million in cash on hand. Most of this is outside the U.S. At June 30, we had a debt balance of almost $400 million, $397 million, compared to $418 million at March 31. The decrease was just due to utilizing our cash flow to make payments in our revolver.

As I think most of you know, we have about $150 million of 10-year bonds that will mature and be redeemed on July 31. We have ample capacity under our revolver to redeem those bonds and we're currently exploring various long-term financing alternatives to do something on a more permanent basis there. We'll update you on those plans as they evolve.

During the quarter, you probably saw that S&P and Moody's raised their Wabtec ratings to BBB- and Baa3, respectively. These investment-grade ratings give us greater flexibility as we evaluate our long-term capital structure.

A few miscellaneous items that we typically go over and give you the details on. Depreciation was $8.7 million compared to $6.7 million in last year's quarter. Amortization was $5.2 million versus $3.3 million last year. This increased due mainly to acquisitions, including some short-term what we call purchase price accounting.

The CapEx for the quarter was $8.2 million versus $6.3 million last year. For the first 6 months of the year, CapEx spending was about $15 million. Our budget's $48 million. We typically underspend our CapEx budget. The initial budget tends to be a little bit of a wish list and then we scrutinize the requests as they come in. So we're doing okay on CapEx.

In terms of backlog, we always give you specific numbers on them. We're still near the record high we established the last quarter and 5% higher than a year ago. The multi-year backlog, the total backlog, is $1.7 billion, which is slightly lower than the one at March 31 of this year by about $40 million. But again, that's not really too material when you're talking about $1.7 billion.

The total transit backlog is $1.18 billion versus $1.19 billion, and the freight backlog is $490 million versus $515 million. So relatively stable. Then the rolling 12-month backlog, this is what we expect to execute during the next 12 months, not the total backlog is $1.1 billion, which is slightly higher than it was at March 31. Transit was $671 million versus $661 million and freight was $409 million versus $403 million. So virtually the same.

And of course, these figures don't include options -- we don't include options in our backlog until we can exercise them. But the current option balance is about $200 million.

And with that, I'll turn it back to Al.

Albert J. Neupaver

Okay, thanks, Alvaro. As you can see, our team is performing well, with record sales and earnings, good margin performance and a backlog at near record levels. We're anticipating another record year and raised our EPS guidance to $2.98 to $3.03 on revenue growth of about 8%. We remain pleased with our strategic process and our long-term growth opportunities that 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 costs. With our experienced management team and dedicated workforce, we are poised to take advantage of our growth opportunities and to respond to any changes in the market conditions.

With that, we'd be more than happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Scott Group with Wolfe Research.

Scott H. Group - Wolfe Research, LLC

So I want to understand the revenue guidance a little bit. With the railcar delivery comps getting a lot easier in the back half of the year, do you think freight flattens out or turns positive in the back half? And is that what's getting you towards a bit of a higher growth rate than we saw in the first half of the year, or is it more transit just continues to get better?

Albert J. Neupaver

Yes. As you can tell from the guidance, in order to hit that 8%, we would have to have increased sales in the second quarter of about 6% over second half compared to the first half by about 6%. And most of that growth, we feel, is going to come in the freight area, as you stated. Some of that will be from PTC, some of it will be also from our Industrial business. But I think like others in the industrial community, there's still this belief that we should see some improvement in the economy in the second half of the year. Although it sure isn't apparent so far in this quarter that we're starting now.

Scott H. Group - Wolfe Research, LLC

Do you have a view on why the railcar delivery rate is down so much if the backlog is up? What's the issue in the supply chain? What's the bottleneck in the supply chain that's preventing the delivery?

Albert J. Neupaver

Yes, Scott, if I understand it correctly, what you have is about 80% of the backlog is in tank cars. And if you take a look at what the Railway Supply Institute puts out, basically, tank car deliveries and orders are about the same at around 7,000 in the quarter. And that's about what the capacity is. So if you have a backlog that's up around 70 -- what is it, 74,000 and 80% of that is in tank cars, and what you get is when the tank cars is at capacity, now there's a lot of, I think, activity gone right now for people to increase their capacity in tank car production, but it's basically limited to about that much right now. So if there's any bottleneck, I believe that that's what it would be.

Scott H. Group - Wolfe Research, LLC

Okay. That's good color. Maybe for Alvaro, when I look at second quarter versus third quarter, typically operating margins are pretty similar. I know you guys don't give guidance, but is there anything we should consider about second quarter that was unusual in any way? Or when we start thinking about our models for third quarter?

Alvaro Garcia-Tunon

I'm not sure there really is anything unusual in the second quarter. We'll typically have a few one-timers in any quarter, and this quarter is no different. You have some good guys, some bad guys, but I think overall, things are relatively stable. I think we've had a favorable mix. We had good aftermarket programs that result in a favorable mix. SG&A should be relatively stable going forward, maybe up just slightly from where we are right now. If I had to estimate the run rate for SG&A, I'd do it about $65 million, $66 million, something like that going forward. But absent acquisitions, I'm not saying we're not going to do any acquisitions, I'm just saying remodeling purposes absent acquisitions, I think it's relatively stable.

Scott H. Group - Wolfe Research, LLC

Okay, great. Then just lastly, you mentioned the opportunity in South Africa. Is there any more color you can give on how big of an opportunity you think this could ultimately be? Or when we could start to see this ramp-up?

Albert J. Neupaver

It's so far out and dependent on our participation, I think, that we just wanted to give you a little bit of color on how large -- there are large opportunities in other parts of the world. And as we develop our products and our systems, we're able to participate in those areas. And I think that's the message we're trying to perform rather than to say that we're going to guarantee anyone that we're going to get x percent of any kind of opportunity, okay?

Scott H. Group - Wolfe Research, LLC

That make sense. But would you say, you got pretty decent share of penetration in that market, so whenever that business comes, it should be a good opportunity?

Albert J. Neupaver

Now this is all new business. This is a new opportunity for us. So it creates an interest and hopefully we'll be able to participate in a number of ways. And we're working hard to do that.

Operator

The next question comes from Allison Poliniak with Wells Fargo.

Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division

Just going back to the margins. Growth margins, obviously, quite substantially high for you guys. Is that going, related to mix, sort of what you were talking about, Alvaro? Is this sort of, I guess is that number going to be stable as we go forward as well?

Alvaro Garcia-Tunon

If you take a look at the -- just the increment in sales and how much of it we were able to drop to the bottom line, we call it contribution margin. Incremental margin, typically, we're only able to able to drop about 20%. And this particular quarter, it's double that. So I think the team executed a quarter extremely well from all facets. I don't think there's one absolute reason why it was there and that's how we view our continuous improvement program. We're going to focus on cost. We're going to focus on getting that contribution margin any time that we have revenue increases. We want it to come to the bottom line. So yes, mix had some favorable impact. And in any different quarter, as Alvaro says, there's pluses and minuses and sometimes the pluses beat the minuses.

Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division

Great. And then Al...

Alvaro Garcia-Tunon

Going forward, if I could. I think we expect our expenses to be relatively stable from where we are right now. We're always -- as I think you know, we're always to trying to cut our expenses. And I think we do a pretty good of job with that. But I think going forward, they'll be relatively stable.

Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division

Perfect. And then on acquisitions now, obviously a quiet quarter, I think, across-the-board here, can you just give us your thoughts in terms of multiples? I mean what's really driving I guess this comp in terms of the acquisition environment right now?

Albert J. Neupaver

Yes, believe me, the calm is not a lack of activity here that we're working on. The calm is we're always being very selective. We take it very, I think, a cautious approach to acquisitions, making sure that we want to be able to close acquisitions. We want them to be good acquisitions. So there's a lot of activity going on right now in that area and hopefully, we'll have things that we could report about in the near future. But I think from a standpoint of what's the environment out there, I think that there's a lot of people that are active in this area as well. So I think it's become more competitive than it has been in the past.

Operator

The next question comes from Mike Baudendistel with Stifel, Nicolaus .

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Why don't you -- one question I've been getting a lot is on the -- following the Québec derailment and sort of which companies benefit from that. I was wondering if there's a big crackdown on crashworthiness of equipment and just additional safety features? Is there any possibility that you could play in that market, possibly add additional value to the cars and locomotives that you service?

Albert J. Neupaver

Yes, first of all, our hearts really go out to the people that have been affected by that tragedy. I mean, they definitely are in our thoughts and prayers. And any tragedy like that is truly a tragedy. I must say that -- all I'll say is that our focus at Wabtec has been and will always be to really work on the efficiency, the productivity and the safety of the railroads. So that is what we focus our technology on. That's what we're going to focus on in the future.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then the revenue guidance of about 8% this year, I think earlier you said 8% to 10% in previous quarters. Just was wondering what sort of the changes that gets you to the lower end of that range, is it strictly macro-driven?

Albert J. Neupaver

Yes, I think it is. I mean as we go on, we try to refine what we think the year is going to look like. I think everyone in the industrial community, as I stated earlier, felt that the second half was going to be better than the first half. And to be honest with you, some of that improvement that others had been looking for and you could read all the earnings reports that come out, you're going to see that it really hasn't -- it hasn't happened yet. So all we're doing is refine it. We think that we've got good growth strategies that will result in 8%. And by anyone's means, I think that's an excellent performance in a economy on a global basis that is really slowly, slowly, slowly recovering.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Yes. And in the emerging markets that you serve, some of the rails have talked about some headwinds as far as slowing global commodities and some of the ways that impacted their traffic negatively. If any of the customers are buying equipment for mining and things like that are starting to slow down as far as what their discussions with those customers?

Albert J. Neupaver

I think the emerging country, the main driver for growth has been China. And China, I think, most recently announced that they're going to try to keep their GDP above 7%. And how they're going to do that is investment in transportation. They didn't just say infrastructure. They said transportation, which is a plus. But as they go from -- they used to be at 10% and it dropped to 9%, 8% and their GDP was growing. That growth across all aspects of the infrastructure helped drive economies in Australia, Brazil and South Africa. And I think that as it slowed down, there is an impact in those marketplaces. And we've seen some of that, but nothing drastic because, again, China, I think, is the driving force for all 3 of those market areas for us.

Operator

The next question comes from Liam Burke with Janney Capital Markets.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Al, in your aftermarket discussion, you talked about the Chicago service center, which is run up to capacity pretty quickly. Do you see any opportunity to grow that either through expansion or opening up some more facilities throughout the country?

Albert J. Neupaver

Yes, that's a good question. We think it's location, location, location. And our Chicago operation is right there where it services a lot of the railroads and some of the leasing companies. And we're actually looking for other areas in the country that we could provide a similar service to our customers. So yes, there's some opportunity there.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

How are the margins in that business? I mean service versus aftermarket product?

Albert J. Neupaver

In a way, service is, as we classify it, is in our aftermarket business. And generally, aftermarket service type activities are a little more profitable than OEM but we also have good profit in our OEM side. So I would say it's very comparable to our average margin area, if not a little better.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

And Alvaro, you gave us a capital expenditure estimates of the year that typically you termed as high based on wish list. Do you see any of that wish list investment coming through this year? Or do you see potentially that CapEx number scaling back measurably?

Alvaro Garcia-Tunon

I would say if you annualize the current pace and takes the budget amount, which I think was about $48 million, and you kind of split the difference, I would say that's probably a rough number for the year, if I had to take a guess.

Operator

The next question comes from Matt Brooklier with Longbow Research.

Matthew S. Brooklier - Longbow Research LLC

So the PTC rev for second quarter of $55 million, roughly how does that break out per freight in transit?

Albert J. Neupaver

About $45 million of that was freight and about $10 million of that was international. I don't think we had much transit revenue this quarter.

Matthew S. Brooklier - Longbow Research LLC

Okay. And then if I take what you've done in the first half of this year and I look at your guide, for '13, it implies second half closer to maybe $75 million a quarter. I guess what gives you conviction that we're going to start to see PTC ramp into the back half of this year? Is it just your visibility with the freight railroads? Is it expectation for the cadence of transit contracts to accelerate? What gets you to that plus $70 million number in second half?

Albert J. Neupaver

Well, there's a number of things that are driving it. Number one is that we're moving along in our large project that we have in South America. And we've progressed into the pilot phase, which is running extremely well. And as that progresses, we could kind of get an idea of what kind of revenue that we could recognize on that project. We also have about, I think, almost $100 million of announced booked backlog in the transit area and some of those projects are moving along as well. And we're starting to talk, and we have been talking to a number of other transit agencies. And hopefully, the other part of it would be the freight railroads and we're continuing to support that initiative. And hopefully, we'll see that, that initiative would result in some continued orders that we would see for onboard equipment. So I think it's all 3 areas.

Matthew S. Brooklier - Longbow Research LLC

Okay, that's a good color. And maybe just if you can touch on what you're seeing within the, I guess, the European theater. How did the operating environment feel in 2Q versus first quarter?

Albert J. Neupaver

It's basically stable. As you know, I don't know how many quarters in a row now that they remain in a recession. And it hasn't had that much of an impact in the transit arena, and their freight market is not that just large. So we're not seeing any negativity coming out of Europe.

Operator

The next question comes from Greg Halter with Great Lakes Review.

Gregory W. Halter - LJR Great Lakes Review

A couple housekeeping ones. Can you provide equity number as of June 30?

Alvaro Garcia-Tunon

Yes, I figured that one was coming. The total shareholders' equity is about $1.4 billion. I think the number we're working right now is $1.405 billion.

Gregory W. Halter - LJR Great Lakes Review

All right.

Alvaro Garcia-Tunon

And that compares to total long-term debt of about 400.

Gregory W. Halter - LJR Great Lakes Review

Okay. And relative to the opportunity for PTC in South America, I presume you're working or looking at or speaking to the other -- the larger railroads there. Can you provide any update on how that maybe going?

Albert J. Neupaver

We continue to have discussions. I think that most of them would like to see the system [indiscernible] and making sure that the advantages that this particular railroad had anticipated are delivered. We think that we're at the stage where that's being proven out right now. I think the other thing is will impact them is the growth opportunity as they see going forward. This -- for MRFs, as we've communicated, this was a productivity improvement. They had an antiquated signaling system and by putting in this system, they're able to increase their capacity without capital expenditures and rolling stock and maintenance and weigh areas. So I think as the results get proven out, and the market improves in those particular areas, I think that there'll be an increased interest. Now their signaling system may not need adjusted at this moment, but at some point, they're going to need to upgrade and I think it depends on how successful we are where we're at, at MRFs right now.

Gregory W. Halter - LJR Great Lakes Review

And how much longer do you think the MRF goes before you'll have a solid footing on the success factor?

Albert J. Neupaver

Well, I think right now, we're predicting the project to be totally complete before this time next year. So I think early next year, we're going to be operating and hopefully we'll be talking to them about this is not the total railroad system. There is additional projects that we could have with them as well, depending on their demand.

Gregory W. Halter - LJR Great Lakes Review

Okay, great. And is there any update on the content, on Wabtec's content per locomotive and car now? Or is it pretty much...

Albert J. Neupaver

Not really. But I think it's a -- if you take a look, at about 25% of the onboard equivalent locomotives has been equipped. And I think we've openly said that our freight PTC sales have been of the total 350, about 200 of it is freight related.

Gregory W. Halter - LJR Great Lakes Review

Okay. And you mentioned the situation in Québec and you've probably seen the additional one here in Spain. And there seems to be about a crash per day worldwide in trains. So, unfortunately, it's nothing that new if you want to put it that way, most are minor, obviously. But any impact that you would feel from the situation in Spain?

Albert J. Neupaver

Again, these are tragic accidents, and I think the railroads at least in the U.S. standpoint has had, in 2012 was the safest year ever in history. And our focus is and will continue to be on efficiency, productivity and safety of the railroads.

Operator

[Operator Instructions] The next question is a follow-up from Scott Group with Wolfe Research.

Scott H. Group - Wolfe Research, LLC

Just a quick follow up. Within the guidance, Alvaro, what have you assumed with respect to the debt on July 1? Because it can have an impact on the numbers.

Alvaro Garcia-Tunon

Yes. Basically, what -- in terms of the debt, it'll mature July 31. The current debt is at 6 7/8. Obviously, rates are much lower than that. What we'd like to do is do something long term. Right now, we're exploring different alternatives and there's a number of options open. You can do a private placement, you can do term notes, you can issue -- you can issue other public debt. And what we've done is, is we've assumed that we're going to enter into some kind of long-term transaction. So in other words, for the rest of the year. Right now, we borrow on the revolver at about 100 points, 100 basis points over LIBOR. So that rate is extremely low. We have assumed a higher one for the rest of the year given that we hope to do something to tie in some of these rates for longer term, which will be at a higher rate than the current, just 100 over LIBOR.

Scott H. Group - Wolfe Research, LLC

And with investment grade, is that somewhere in that 3%, 4% range?

Alvaro Garcia-Tunon

Right now, rates are very volatile and they're all over the place. But, yes, we are assuming a higher long-term rate for the balance of the year. And with regard to the forecast.

Operator

With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Al Neupaver for any closing remarks.

Albert J. Neupaver

Thank you very much, and we look forward to talking to you at the end of next quarter. Thanks a lot.

Alvaro Garcia-Tunon

Thanks, everybody. Bye-bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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