Knorr-Bremse ETR: KBX reported what Chief Executive Officer Marc Llistosella called its strongest third quarter in five years, citing improved profitability, cash flow and operating resilience as the company nears the completion of its BOOST efficiency program.
The company said it is preparing to launch its next strategic phase, Growth Beyond, on Jan. 1, 2027. While BOOST emphasized cost discipline, profitability and capital efficiency, Growth Beyond will focus on profitable expansion. Management said the expected growth trajectory will not be linear, particularly in Rail, where more substantial growth is expected from 2028.
“Everything what we promised in 2023, we achieved,” Llistosella said, adding that the company’s lower cost base has improved its break-even position and enabled it to convert revenue gains into profitability more effectively.
Cash Flow and Capital Efficiency Improve
CFO Frank Weber said third-quarter capital expenditures totaled EUR 48 million, or 2.3% of revenue. Full-year CapEx is expected to come in toward the lower end of Knorr-Bremse’s targeted range of 4% to 5% of revenue.
Net working capital declined to EUR 1.49 billion, while the working-capital efficiency metric improved to 66 days. Free cash flow reached EUR 238 million in the quarter, representing a cash conversion rate of 129%. For the first nine months, free cash flow totaled EUR 531 million.
The nine-month result included approximately EUR 34 million in one-time reimbursements of previously paid U.S. IEEPA tariffs, including EUR 14 million recognized in the third quarter. Weber said that even excluding those repayments, free cash flow was nearly EUR 200 million above the prior-year level.
Return on capital employed rose 300 basis points year over year to 24.2%. Llistosella said the company’s quarterly operating EBIT margin of 14.6% was its second-highest quarterly result, behind only the 14.7% reported in the fourth quarter of 2018.
Rail Margin Rises Despite Order Delays
Rail order intake declined 11% year over year to approximately EUR 1.05 billion, producing a book-to-bill ratio of 0.94. Weber attributed the decline partly to roughly EUR 80 million of customer orders that were postponed and are expected to be awarded within the next six months. The company expects the majority of that amount to be booked in the fourth quarter.
Knorr-Bremse also chose not to pursue one larger tender because the profitability and risk conditions did not meet its requirements. Head of Rail Nicolas Lange said the decision did not indicate a broader deterioration in competitive conditions.
Rail revenue increased 6% to EUR 1.11 billion, including organic growth of about 2%. Revenue growth was supported by all regions, though freight-market weakness in Europe and North America and a weaker Chinese metro market temporarily affected organic growth. North American and European revenue benefited from original-equipment activity, while APAC revenue rose more than 10%.
Rail’s operating EBIT margin rose 70 basis points to 17.7%, its highest quarterly level since 2021. The company said BOOST measures and operating leverage drove the improvement. The tariff-related effect contributed about EUR 5 million to Rail EBIT during the quarter, with only limited contributions expected in subsequent quarters.
- Rail order backlog rose 4% to nearly EUR 5.9 billion, supported in part by foreign exchange movements.
- Fourth-quarter Rail revenue is expected at around EUR 1.2 billion, with order intake also anticipated at roughly EUR 1.2 billion.
- For the full year, Rail organic revenue growth is expected at 3% to 4%, while the operating EBIT margin outlook remains 17.5%.
Lange said Rail should see organic growth in 2027 that is similar to or modestly better than 2026. He added that the division expects to reach at least 7% growth in 2028, supported by Rail Services initiatives that can materialize faster than original-equipment programs.
Truck Business Benefits From North American Recovery
The Truck division reported order intake of more than EUR 1 billion and a book-to-bill ratio of 1.09. Its order backlog exceeded EUR 2 billion. Management said the North American recovery has moved through the supply chain, with production slots largely booked through year-end and no meaningful supply-chain shortfalls identified so far.
Truck revenue rose to EUR 938 million in the third quarter. Original-equipment revenue increased more than 20%, while aftermarket revenue declined slightly. Growth was reported across the three major regions, with North American original-equipment revenue rising 50% year over year.
Operating EBIT in Truck reached EUR 116 million, and the operating EBIT margin improved 100 basis points to 12.3%. Weber said the result reflected a structurally lower cost base, rigorous efficiency measures and the operating leverage associated with higher North American volumes.
Management said it does not need significant new investments to expand North American production capacity, as it can increase output primarily by flexing its workforce. However, Weber said lower-tier supplier performance remains the principal potential supply-chain risk.
For the full year, Knorr-Bremse expects Truck organic revenue growth of about 7% and an operating EBIT margin of 12%, assuming North American demand remains strong. Weber said the division could improve margins by up to 100 basis points in 2027, toward roughly 13%, if markets develop as expected and cost-efficiency efforts continue.
Outlook and Growth Priorities
The company reaffirmed its 2026 outlook, expecting revenue at the upper end of its previously communicated range, operating profitability within its targeted range and free cash flow at the upper end of expectations.
Llistosella said future investment and growth decisions will continue to be governed by profitability and capital efficiency. He also highlighted opportunities in digital freight systems, automated couplers, electromechanical braking, signaling, electric power steering and China-based supply-chain and technology development.
Management said it remains prepared for potential modernization of China’s rail freight market, though any resulting demand is not included in current plans. The company also noted that its HVAC business remains included in current figures but is expected to be excluded from reporting beginning next year.
About Knorr-Bremse (ETR:KBX)
Knorr-Bremse AG, together with its subsidiaries, engages in the development, production, marketing, and servicing of braking and other systems for rail and commercial vehicles worldwide. The company operates in two segments, Rail Vehicle Systems and Commercial Vehicle Systems. The Rail Vehicle Systems segment offers braking systems, entrance and HVAC systems, sanitary systems, coupling systems, digital solutions, smart services for optimizing rail traffic, power electrics, rail computing and communication (RCC)/TCMS, signaling systems, stationary and mobile testing equipment, windshield wiper and wash systems, and extensive aftermarket solutions.
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