Knorr-Bremse Earnings Call Signals Profitable Momentum

Knorr-Bremse AG ((DE:KBX)) has held its Q4 earnings call. Read on for the main highlights of the call.

Knorr-Bremse’s latest earnings call struck a cautiously upbeat tone, balancing record cash generation and rising margins against visible pockets of cyclical weakness. Management framed 2025 as a year of solid execution, with rail driving profitability, the balance sheet strengthening markedly, and clear 2026 targets underlining confidence despite truck softness and regional volatilities.

Revenue Growth Holds, With Strong Q4 Finish

Knorr-Bremse reported almost EUR 8.0 billion in revenues for FY2025, delivering slight organic growth at group level despite headwinds. The fourth quarter was notably stronger, with roughly EUR 2.0 billion in sales and organic growth above 6%, signaling solid momentum into the new year.

Margins Push Higher Across the Group

Group operating EBIT margin improved by 70 basis points to 13.0% in FY2025, highlighting better pricing, mix, and cost discipline. Q4 profitability was even stronger, with the operating margin rising to 13.5% year over year, confirming that efficiency measures are gaining traction.

Rail Division Hits Targets Ahead of Schedule

The Rail Vehicle Systems division delivered margin‑accretive growth and reached its midterm margin target one year early, posting a 16.5% operating margin in 2025. In Q4, RVS lifted its operating EBIT margin by 140 basis points to 17.0% on nearly EUR 1.1 billion in revenue, up 3% reported and 7% organically.

Record Free Cash Flow Underpins Valuation

Free cash flow surged to a record EUR 790 million in FY2025, supported by strong earnings and tight working‑capital management. The operating cash conversion rate hit 131%, and management stressed that excluding around EUR 80 million of severance one‑offs, normalized conversion would have been closer to 138%.

Deleveraging Builds Balance Sheet Firepower

Net debt declined by 31% to EUR 627 million, bringing net debt to EBITDA to just below 0.5 and giving the group ample flexibility. Equity stood near EUR 3.2 billion with an equity ratio of 36%, while total liquidity around EUR 1.7 billion rose after bond repayment, improving operational headroom.

Healthy Order Intake and Growing Backlog

Order intake grew 6% organically and the backlog expanded 8% organically in FY2025, supporting medium‑term visibility. The RVS order book closed the year near EUR 5.6 billion, with backlog up 9% organically, while Q4 group order intake of about EUR 2 billion yielded a book‑to‑bill around 1 for the year.

BOOST Program Drives Efficiency and Returns

The BOOST efficiency program improved the group breakeven point by roughly 400 basis points, underpinning the margin gains reported. Over three years, headcount was reduced by more than 2,400 and CapEx was optimized to EUR 319 million, or 4.1% of revenues, helping lift ROCE to 22.8%, up about 200 basis points.

Truck Aftermarket and Digital Platforms Gain Traction

In the Commercial Vehicle Systems segment, aftermarket and digital offerings advanced, with Cojali generating more than EUR 130 million in revenues at attractive margins. CVS posted Q4 order intake of EUR 977 million, up about 10% reported and 20% organically, while the division’s Q4 operating margin improved 180 basis points to 11.3%.

Sustainability Metrics Strengthen Long-Term Case

Since 2018, Knorr-Bremse has cut its Scope 1 and 2 CO2 emissions by 79%, underlining progress on its climate agenda and operational efficiency. Self‑generated renewable power increased by 41%, and EU taxonomy‑aligned revenues ticked up, supported by the growing contribution from the rail segment.

North American Truck Market Remains a Drag

The CVS division continued to face pronounced weakness in North American truck demand, with full‑year OE business down significantly in that region. North American aftermarket revenue fell about 10% in Q4, and while CVS grew more than 5% organically overall, reported full‑year revenues decreased 4% to EUR 881 million.

RVS Q4 Order Softness Seen as Timing Issue

Rail orders softened in the fourth quarter, with RVS order intake down roughly 10% year over year across most regions except China and affected by currency. The division’s Q4 book‑to‑bill of 0.91 reflected timing shifts, as management noted that an order of about EUR 50–100 million had slipped into 2026 rather than signaling a structural downturn.

China Rail Normalization Risk Factored In

Management expects Chinese rail activity to normalize after a strong 2024–25 cycle, particularly in metros, and has already incorporated this into guidance. For 2026, the company models a modest revenue reduction of roughly EUR 30–50 million versus 2025 in China, framing it as a manageable cyclical adjustment rather than a structural issue.

HVAC Divestment and One-Off Costs in Focus

The HVAC business remains classified as held for sale, with the process described as advanced but still pending as management seeks a sustainable long‑term solution. Around EUR 80 million of severance‑related one‑off costs in 2025 linked to restructuring and efficiency efforts weighed on reported cash conversion but are not expected to repeat.

FX and Seasonality Cloud Near-Term Results

Reported CVS revenues were held back by foreign exchange and M&A accounting effects, masking otherwise solid organic growth trends. Management also flagged typical Q1 seasonality, including weaker aftermarket activity and Chinese New Year in RVS, and cautioned that profitability will be softer early in the year before improving through 2026.

Guidance Points to 2026 Margin Expansion

For FY2026, Knorr-Bremse guided revenues of EUR 8.0–8.3 billion, an operating margin around 14% and free cash flow of EUR 750–850 million, with CapEx at roughly 4–5% of sales. RVS is expected to sustain a book‑to‑bill near 1 and an operating margin just below 17.5%, while CVS targets low‑ to mid‑single‑digit organic growth and margin improvement toward about 12%, supported by a balance sheet that could accommodate higher leverage for accretive deals.

Knorr-Bremse’s call painted the picture of a company executing well on profitability, cash, and rail growth while navigating truck cycles and regional swings with caution. For investors, the story is one of rising margins, robust orders, and strong financial flexibility, albeit with the reminder that North American trucks, China normalization, and FX will keep near‑term results uneven.