John Olin
Executive Vice President and Chief Financial Officer at Westinghouse Air Brake Technologies
Thanks Rafael, and good morning everyone. It's great to be with you and I'm very excited to join the team at Wabtec. It is a storied company with incredible talent, deep innovation and best-in-class differentiated technologies that is well positioned to deliver the future of rail while growing shareholder value and I look forward to meeting with many of you in the coming months. Now, turning to Slide 8 before getting into the financials, we would like to discuss the dynamic cost environment and supply chain challenges that we face. During the third quarter, we experienced delays in production and deliveries of our products as well as significant increases in many key input costs.
On the revenue side, we are experiencing adverse impacts to our sales results due to shortages across many component parts, including computer chips, which are causing delays in production and customer delivery. We believe that our enterprise revenues were to 2% to 3% lower than they would have been without the supply chain disruptions and that the majority of these lower revenues represent delayed sales, not lost sales. The impacts to Wabtec's cost structure come in four areas. First, commodity inflation; where markets year-over-year are up more than 200% for steel, 94% for aluminum and roughly 40% for copper.
The second area of impact is elevated freight and logistics costs, which in many cases are up over 3 times to 4 times from pre-COVID levels. Third is wage inflation and labor availability, which are adversely impacting the business and finally, we are experiencing loss manufacturing efficiencies, largely due to component and chip shortages. Our costs have increased during the quarter and have impacted both our Freight and Transit segments. We estimate that cost increases in the third quarter are in the range of $15 million to $20 million.
Having said that, we expect these headwinds to intensify as the full cost of rising metals and lower manufacturing efficiencies work their way through our inventories and purchase contracts. We anticipate cost to continue to increase over the next few quarters. Our team is working hard to mitigate the impact of these cost pressures and supply chain disruptions by triggering price escalation clauses that are included in many of our long-term contracts, implementing price surcharges, driving operational productivity, and lean initiatives and finally through higher realization of synergies.
Turning to Slide 9, I'll review our third quarter results in more detail. We had good operational and financial performance during the quarter, sales for the third quarter were $1.91 billion, which reflects a 2.2% increase versus the prior year. Sales were positively impacted by the continued broad-based recovery we are experiencing across much of our portfolio. The acquisition of Nordco and favorable currency exchange, partially offset by continued weakness in the North America OE locomotive market and lower year-over-year sales in Transit.
For the quarter adjusted operating income was $325 million which was up 10.6% versus the prior year. Most notably, we delivered margin expansion in both our segments, up 1.3 percentage points on a consolidated basis. Margins were aided by strong mix favorability, improved productivity and better than expected realization of synergies. As Rafael stated during the quarter, we achieved our goal of $50 million of synergy run rate a significant milestone delivered a full year earlier than originally forecasted.
What makes this quarter's margin expansion even more impressive is the fact that our margin gains were achieved in the face of an incredibly dynamic supply chain and inflationary environment. Looking at some of the detailed line items for the third quarter; adjusted SG&A was $257 million which was up $16.1 million from the prior year due to the normalization of certain expenses, higher incentive compensation and employee benefit costs and the acquisition of Nordco. For the full year, we expect SG&A to be about 12.25% of sales, adjusted SG&A excludes $12 million of restructuring and transition expenses, of which most was allocated to further optimize our European footprint.
Engineering expense increased from last year, we continue to invest engineering resources and current business opportunities but more importantly, we are investing, our future as an industry leader in decarbonization and digital technologies that improve safety, productivity and capacity utilization. Our 2021 investment in technology, which includes engineering expense remains at 67% of sales. Amortization expense was $72.5 million and our adjusted effective tax rate during the quarter was 24.8%, bringing our year-to-date adjusted effective tax rate to 25.8%. For the full year, we still expect an effective tax rate of about 26% excluding discrete items.
In the third quarter, GAAP earnings per diluted share were $0.69 and adjusted earnings per diluted share were $1.14 up 20% versus prior year. We are pleased with our Q3 results. In particular, our sales growth in the face of supply chain disruptions, our margin growth in the face of sharp cost increases. We remain diligent and proactive as we work to minimize these challenges. Now, let's take a look at segment results on slide 10 starting with the Freight segment. Across the Freight segment, total sales increased 4.7% from last year to $1.3 billion, primarily driven by continued strong growth at our services and component businesses.
In terms of product lines, equipment sales were down 5.7% year-over-year due to fewer locomotive deliveries this quarter versus last year and no new locomotive deliveries in North America, partially offset by strong mining sales. This year-over-year performance demonstrates the resiliency of our equipment portfolio. In line with an improved outlook for rail, our services sales grew a robust 13.6% versus last year. The year-over-year sales increase was largely driven by higher aftermarket sales from our customers modernizing their fleets, the unparking of locomotives and the acquisition of Nordco.
The performance, reliability and availability of our fleet continues to drive customer demand as railroads increasingly look for predictable outcomes across their fleet. Excluding Nordco, organic sales for the third quarter were up 6.1%. Digital Electronics sales were down 3.6% year-over-year driven by delays in purchase decisions due to economic and cost uncertainties as well as chip shortages. We continue to see a significant pipeline of opportunities in our digital electronics product line as customers globally focus on safety, improved productivity, increased capacity and utilization. Component sales continued to show recovery and were up 6.7% year-over-year driven by demand for railcar components and recovery in industrial end markets.
We remain encouraged by the continuing trend of railcars coming out of storage higher order rates of new railcars and accelerated recovery across industrial end markets. Shifting to operating income for the segment; Freight segment adjusted operating income was $266 million for an adjusted margin of 20.6%, up 1.7 percentage points versus the prior year. The benefit of higher volumes, improved mix across our portfolio and increased synergies and productivity were partially offset by significantly higher input costs.
Finally, segment backlog was $18.2 billion, up $375 million from the prior quarter and the broad multiyear order momentum that Rafael discussed across the segment. Turning to Slide 11, across our Transit segment sales decreased 2.5% year-over-year to $612 million. Sales were down versus last year, due in large part to supply chain issues and COVID related disruptions. This was partially offset by positive ridership trends. Excluding near term supply chain challenges, we estimate that Transit sales would have been up slightly on a year-over-year basis.
We believe the medium and long-term outlook for this segment remains positive as infrastructure spending for green initiatives continues. Adjusted segment operating income was $77 million, which resulted in an adjusted operating margin of 12.5%, up 50 basis points versus prior year. Across the segment, we continue to drive down cost and improve project execution despite the volatile cost environment. For the year, we remain committed to deliver about 100 basis points of margin improvement for the segment and the team continues to take aggressive action to mitigate rising costs and supply chain disruption, which will pressure the pace of near term margin improvement. As we execute in the fourth quarter, we expect significantly improved operating margin driven by strong productivity gains, improved project mix and more favorable comps versus the prior year's fourth quarter.
Finally Transit segment backlog for the quarter was $3.6 billion, which was flat with the prior quarter after adjusting for the negative effect of foreign exchange. Now, let's turn to our financial position on Slide 12. We had another strong quarter for cash generation. We generated $244 million of operating cash flow during the quarter, bringing year-to-date cash flow generated to over $759 million. This performance, clearly demonstrates the quality of our business portfolio. During the quarter, total capex was $23 million bringing year-to-date capex to $78.5 million.
In 2021, we now expect capex to be approximately $120 million. This is $20 million lower than our previous guidance as the team judiciously manages every dollar of spend. Our adjusted net leverage ratio at the end of the third quarter was 2.6 times and our liquidity is robust at $1.62 billion. Also during the quarter we returned capital to shareholders, repurchasing $199 million of shares. As you can see in these results, our balance sheet continues to strengthen and we are confident we can continue to drive solid cash generation, giving us the liquidity and flexibility to allocate capital towards the highest return opportunities and to grow shareholder value.
With that I'd like to turn the call back to Rafael.