Alstom SA (ALO), the world’s third-largest power-equipment maker, cut its profitability forecast after earnings missed analyst estimates amid reduced spending by clients. The stock dropped the most in more than four years.
The operating margin is now predicted to stay stable in the 12 months through March 2014 and then gradually increase over the next two to three years to about 8 percent of sales, Alstom said in a statement today. The company, based in the Paris suburb of Levallois-Perret, previously forecast that the margin would rise to about 8 percent by fiscal 2015.
Alstom has cut jobs in Europe to adjust to lower demand from local utilities as clients slash spending amid the region’s economic woes. Chief Executive Officer Patrick Kron said today he’s also shutting wind turbine plants in Spain, reducing capacities in transformers, and regrouping hydro staff on fewer sites in Europe.
“Alstom faces medium to long-term market position challenges in the majority of its businesses,” said RBC Capital analyst Andrew Carter. “We estimate consensus full-year estimates could fall by 5 to 10 percent, based on the revised guidance.”
Alstom declined as much as 3.57 euros to 28.63 euros, the biggest drop since Oct. 2008, in Paris trading and was down 9.1 percent as of 10.59 a.m., valuing the company at 9 billion euros. Before today, the stock had risen 6.9 percent this year, while the Bloomberg Europe Machinery Index had gained 2.1 percent.
‘Markets aren’t easy,’’ Kron said at a press conference today. “Our short-term performance is expected to be impacted by lower volumes than anticipated due to a more challenging environment.”
Some customers are now also slowing down some power- transmission projects, notably in India, the company said.
Net income in the year through March rose 9.6 percent 802 million euros ($1.05 billion), Alstom said. Analysts surveyed by Bloomberg had estimated profit of 932 million euros. Income from operations, defined as revenue minus the cost of sales, research and development and administration, rose 4.1 percent to 1.46 billion euros, with the operating margin widening to 7.2 percent of sales from 7.1 percent a year earlier.
Alstom said it plans to raise this year’s dividend by 5 percent to 84 cents a share. Free cash flow amounted to a positive 408 million euros in the year ended March after an outflow of 573 million euros in fiscal 2012, it said.
The French company ranks behind General Electric Co. (GE:US) and Munich-based Siemens AG (SIE) in the power-equipment industry. The French company also competes with Siemens and Montreal-based Bombardier Inc. (BBD/B) on train cars, and with Siemens and ABB Ltd. (ABBN) on power-transmission markets.
New orders at Alstom jumped 9.5 percent to 23.8 billion euros in fiscal 2013, helped by a rebound in demand for regional trains and power-transmission equipment. Sales climbed 1.7 percent to 20.3 billion euros.
“Sales were up despite lower milestones recognition” in hydroelectric contracts in Latin America and customers “slowing down some projects” in power transmission, notably in India, Kron said. The CEO, who had predicted sales would rise by more than 5 percent in the three years through March 2015, now forecasts that revenue will “grow organically at a low single- digit” rate.
Siemens, Europe’s biggest engineering company, predicted on May 2 that it would post a “moderate” decline in sales in its fiscal year through September, excluding acquisitions or disposals. The manufacturer’s quarterly earnings missed analyst estimates amid charges for failed wind-energy transmission projects and the delayed delivery of trains.
Moody’s Investors Service cut Alstom’s long-term credit rating by one level last year to Baa2, the second-lowest investment grade, and said there’s the possibility of another reduction because of “material negative trends in working capital levels.”
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