John Olin
Executive Vice President and Chief Financial Officer at Westinghouse Air Brake Technologies
Thanks, Rafael, and good morning, everyone. Turning to Slide 7, I'll review our fourth quarter results in more detail. We had another good quarter of operational and financial performance. Sales for the fourth quarter were $2.07 billion, which reflects a 2.4% increase versus the prior year.
Sales were positively impacted by the continued broad recovery we are experiencing across our portfolio, recent pricing, and the acquisition of Nordco, partially offset by continued weakness in the North America OE locomotive market, lower year-over-year sales in transit, and unfavorable foreign currency exchange. In addition, 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. We estimate that our enterprise revenues were 3% to 4% lower than they would have been without the supply chain disruptions, and that the majority of these lower revenues represent delayed sales versus lost sales.
For the quarter, adjusted operating income was $334 million, which was up 18.0% versus the prior year. Most notably, we delivered margin expansion in both of our segments of 2.1 percentage points on a consolidated basis. Margins were aided by strong mix favorability, realization of synergies, and improved productivity. The team achieved margin expansion across both segments even in the face of a highly disrupted supply chain and a challenging inflationary environment. We estimate that cost headwinds adversely impacted operating margins by $20 million to $25 million during the quarter.
In the fourth quarter, adjusted earnings per diluted share were $1.18, up 20.4% versus prior year. GAAP earnings per diluted share were $1.2, which was up 122% versus the fourth quarter a year ago. In addition to growth in operating margins, GAAP earnings benefited from a significantly lower tax rate. The fourth quarter 2021 GAAP tax rate of 17.4% was 9.2 percentage points lower than fourth quarter of 2020. This decline in tax rate was due to an election which accelerated deferred tax benefits from our merger with GE Transportation. This favorable tax benefit of $25 million is considered one-time in nature and therefore not included in our adjusted effective tax rate. As Rafael noted, we are pleased with our Q4 results and particularly our sales growth in the face of supply chain disruptions and our margin growth in the face of continued cost increases. We remain diligent and proactive as we work to minimize these challenges.
Turning to Slide 8. Let's review our product lines in more detail. Fourth quarter consolidated sales were up versus last year, driven by higher sales in the Freight segment partially offset by lower Transit segment sales. Fourth quarter sales were adversely impacted by foreign currency exchange of 0.8% and supply chain disruption of 3% to 4%. Equipment sales were down 12.9% year-over-year due to fewer locomotive deliveries this quarter versus last year and no new locomotive deliveries in North America partially offset by continued strong mining sales. Component sales continue to show recovery and were up 11.8% year-over-year driven by demand for railcar components and recovery in the industrial end markets. We remain encouraged by the continuing trend of railcars coming out of storage and higher deliveries of new railcars.
In line with an improving outlook for rail, our services sales grew 21.2% versus last year. The year-over-year increase was largely driven from a record quarter of mods deliveries, the un-parking of locomotives, and the acquisition of Nordco. The superior 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 fourth quarter were up 10.1%.
Digital electronics sales were up 1.8% versus prior year driven by improved demand for onboard locomotive products largely offset by ongoing shortages of chips. Notably, our backlog in 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 safety, improved productivity, and increased capacity utilization.
Across our Transit segment, sales decreased 5.4% versus prior year to $648 million. Sales were down versus last year due to supply chain issues, COVID-related disruptions, and the negative impacts of foreign currency exchange, which adversely impacted revenues by 2.1 percentage points. Excluding near term supply chain challenges, we estimate that transit sales would have been up on a year-over-year basis. We believe the medium and long-term outlook for this segment remains positive as infrastructure spendings for green initiatives continue.
Now moving to Slide 9, our adjusted gross margin expanded by 5.7 percentage points to 31.7% driven by strong 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. Mix benefited margins as services sales outpaced our equipment in transit sales. Additionally, higher pricing was realized from price escalations incorporated into many of our long-term contracts, along with other price actions that were implemented to recover increased costs.
Raw material costs were up significantly, led by dramatically higher metals costs including steel, aluminum, copper, and increased transportation and fuel costs. Foreign currency exchange adversely impacted revenues by 0.8% and adversely impacted fourth quarter gross margins by $5 million. Finally, manufacturing costs were positively impacted by realization of synergies and productivity gains, partially offset by exponentially higher transportation and logistics costs. Container cost continue to be significantly higher than last year.
In aggregate, the continuing effects of the supply chain disruptions, higher materials, transportation and logistic, and labor costs are estimated to be $20 million to $25 million higher than last year's fourth quarter. Our team continues to work 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, and driving operational productivity, and lean initiatives.
Turning to Slide 10. For the fourth quarter, adjusted operating margin expanded 2.1 percentage points versus last year, driven by higher adjusted gross margin but partially offset by higher SG&A and engineering expenses. Adjusted SG&A was $271 million, which was up $65 million from the prior year due to the normalization of certain expenses, higher incentive compensation, and employee benefit costs, and the acquisition of Nordco.
GAAP SG&A includes a net benefit of $7 million primarily of sales of a closed manufacturing facility. Engineering expense increased from last year. We continue to invest engineering resources and current business opportunities. But more importantly, we are investing in our future as an industry leader in decarbonization and digital technologies that improve our customers safety, productivity, and capacity utilization.
Now, let's take a look at the 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 $267 million for an adjusted margin of 18.7%, up 2.4 percentage points versus the prior year. The benefits of improved productivity, realization of synergies, and mix across our portfolio were partially offset by higher net input costs.
Finally, segment backlog was $18.5 billion, up $615 million from the end of last year due to the broad multi-year order momentum that Rafael discussed earlier. This year's backlog growth was driven by an unusually high number of long-term service contracts. Looking forward, we expect our service long-term orders to normalize in 2022.
Turning to Slide 12, Transit segment sales were down 5.4% driven by supply chain disruptions and the negative effects of foreign currency exchange. Adjusted segment operating income was up $11 million to 88 million, which resulted in an adjusted operating margin of 13.6% up a strong 2.3 percentage points versus the prior year and up 1.1 percentage points for the full year. Across the segment, we continue to drive down costs and improved project execution despite the volatile environment.
Finally, Transit segment backlog for the quarter was $3.67 billion down slightly versus a year ago. Adjusting for the negative effect of foreign currency exchange, backlog would have been up 3.6%.
Now let's turn to our financial position on Slide 13. We had another strong quarter of cash generation. We generated $314 million of operating cash flow during the quarter bringing full year cash flow generated to over $1.07 billion, which as Rafael noted is a record high for the company. This performance clearly demonstrates the quality of our earnings and our business portfolio.
During the quarter, total capex was $52 million, bringing total year capex to $130 million. Our adjusted net leverage ratio at the end of the fourth quarter declined to 2.5 times and our liquidity is robust at $1.67 billion. Also, during the quarter, we returned more cash to our shareholders, repurchasing an additional $100 million of shares bringing the full year share repurchases to $300 million and paid dividends of $92 million. As you can see in these results, our balance sheet continues to strengthen and we are confident that we can continue to drive solid cash generation giving us the liquidity and flexibility to allocate capital toward the highest return opportunities and to grow shareholder value.
Moving to Slide 14. Quickly recapping the year. Overall, the team delivered a very strong year for all our stakeholders. Despite challenging dynamics, we drove revenue growth, expanded our operating margins across both segments, and generated robust cash flow. The strong execution provides us a solid foundation and good momentum as we enter into 2022.
With that, I'd like to turn the call back over to Rafael.
