Alstom SA (ALO), a French maker of power equipment and trains, reported a 32 percent drop in fiscal first-quarter orders as utilities and railways in Europe, Africa and the Middle East slashed spending.
Orders in the three months ended June 30 dropped to 4.07 billion euros ($5.38 billion) from 6.03 billion euros a year earlier, the company, based in the Paris suburb of Levallois-Perret, said today. That exceeded the 3.97 billion-euro average of six analyst estimates collected by Bloomberg.
“The problem is that trends in its core market such as thermal power, appear, if anything, to be trending to the downside,” said Ben Uglow, an analyst at Morgan Stanley. “We are hopeful that the first quarter may mark the low point on orders, but it is too early to tell.”
Chief Executive Officer Patrick Kron in May slashed his forecast for sales and margins, citing a slowdown in the global economy. The company, which cut jobs in Europe and the U.S. as utilities’ demand for power equipment slumped after the 2009 recession, is now shutting some plants that make windmills and power-grid gear. At the same time, it is expanding production lines for trains and turbines in countries such as China, Russia, Brazil and India to tap local demand.
“In spite of a difficult commercial environment, tendering remains active, mainly driven by prospects in emerging markets, but the timing of the booking of some large tickets remains, as usual, uncertain,” Kron said today. He reiterated his forecast for sales, margins and free cash flow.
Alstom shares rose 1.5 percent to 26.10 euros as of 9:05 a.m. in Paris trading, valuing the company at 8.1 billion euros. The stock had dropped 15 percent this year before today.
Moody’s Investors Service cut Alstom’s long-term credit rating by one level in June to Baa3, the lowest investment grade. Standard & Poor’s has said it may make a similar move, giving Alstom’s BBB rating a negative outlook.
“The market environment remains challenging but solid activity in the services business, which account for 30 percent of the group’s sales and half of its profit, should help the group weather the downturn,” said Gael de Bray, an analyst at Societe Generale in Paris.
Quarterly sales fell 4 percent to 4.58 billion euros. The drop in first-quarter revenue in Alstom’s transport and thermal power divisions “reflects the execution profile of the backlog,” the company said. The total backlog of 51 billion euros at the end of June represents 31 months of sales, it added.
Orders for thermal-power equipment such as turbines fell 38 percent in the first quarter to 1.55 billion euros, with no large order outside services, Alstom said. Sales contracts for renewable power equipment more than doubled from a low point.
Grid orders fell 14 percent in the April-June period from a year earlier, and orders at the transport division amounted to 1.1 billion euros, down 51 percent from a year earlier, when several big contracts were booked, Alstom said.
The French company ranks behind General Electric Co. (GE) and Munich-based Siemens AG in the power-equipment industry. It also competes with Siemens and Montreal-based Bombardier Inc. (BBD/B) on train and metro cars, and with Siemens and ABB Ltd. (ABBN) in power-transmission markets.
Revenue is still predicted to “grow organically at a low single-digit” rate, and the operating margin will remain stable in the 12 months through March 2014 before gradually rising over the next two to three years to about 8 percent of sales, Alstom said. Free cash flow should be positive year after year over this period, Alstom also reiterated.
To contact the reporter on this story: Francois de Beaupuy in Paris at firstname.lastname@example.org