Knorr-Bremse Reports Strongest Third Quarter in Five Years

Knorr-Bremse AG recently reported its strongest third quarter in five years, delivering a 14.6 percent operating EBIT margin, 238 million euros in quarterly free cash flow, and a 24.2 percent return on capital employed. Chief Executive Officer Marc Llistosella attributed the positive results to enhanced profitability, robust cash flow, and overall operating resilience as the company nears the final stages of its BOOST efficiency program.

During the company's third-quarter earnings call, management reaffirmed its outlook for 2026, anticipating that both revenue and free cash flow will reach the upper ends of their previously forecasted ranges. Llistosella noted that the organization successfully delivered on its previous commitments, stating that everything promised in 2023 was achieved. He added that a lower cost base has significantly improved the company's break-even position, allowing revenue gains to translate into profitability much more effectively.

The rail division experienced a 6 percent rise in revenue alongside an operating EBIT margin of 17.7 percent, despite an 11 percent drop in order intake caused partly by postponed customer awards. Management anticipates stronger growth within the rail sector starting in 2028, while the order backlog grew by 4 percent to reach nearly 5.9 billion euros. Meanwhile, the truck division profited from a solid recovery in North America, where original-equipment revenue grew by more than 20 percent, operating EBIT margins hit 12.3 percent, and order intake exceeded 1 billion euros.

Chief Financial Officer Frank Weber detailed the company's financial metrics during the call, reporting that third-quarter capital expenditures stood at 48 million euros, or 2.3 percent of revenue. Full-year capital expenditures are expected to lean toward the lower end of the targeted 4 to 5 percent range. Net working capital decreased to 1.49 billion euros, and the working-capital efficiency metric improved to 66 days.

Free cash flow for the quarter reached 238 million euros, reflecting a cash conversion rate of 129 percent, bringing the nine-month total to 531 million euros. This total included roughly 34 million euros in one-time reimbursements for previously paid United States IEEPA tariffs, with 14 million euros recognized in the third quarter alone. Weber highlighted that even when excluding those specific repayments, free cash flow remained nearly 200 million euros above the levels seen in the prior year.

Looking ahead, Knorr-Bremse plans to launch its next overarching strategic phase, named Growth Beyond, on January 1, 2027. While the ongoing BOOST program concentrated on strict cost discipline, profitability, and capital efficiency, the upcoming Growth Beyond phase will shift its primary focus toward profitable expansion. Executives cautioned that the anticipated growth trajectory will not be entirely linear, particularly within the rail segment.

In parallel with its financial updates, Knorr-Bremse announced plans to expand its collaboration with local suppliers in China. At the recent Supplier Summit China held in Suzhou under the theme 'Leading Technologies for Future Growth,' the company hosted around 160 representatives from supplier networks, partner organizations, and the economic and political sectors.

The summit focused on deepening the localization of product development and procurement, as well as fostering closer partnerships for projects tailored to both Chinese and international markets. Llistosella emphasized that incorporating local suppliers will help accelerate the introduction of new technologies, enhance supply chain resilience, and provide clear advantages regarding costs, production ramp-ups, and development speed across both the rail and commercial vehicle segments.