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Alstom First-Half Profit Beats Estimates as Train Sales Gain

Alstom First-Half Profit Beats Estimates as Train Sales Climb
Employees stand next to a tilting Pendolino train carriage in Virgin Trains' West Coast mainline livery at Alstom SA's maintenance facility in Manchester, U.K. Photographer: Chris Ratcliffe/Bloomberg

Alstom SA, the French maker of power equipment and high-speed trains, reported first-half earnings that beat analysts’ estimates as sales and orders for trains and turbines climbed.

Income from operations in the six months ended Sept. 30 rose 12 percent to 703 million euros ($904 million), the company, based in the Paris suburb of Levallois-Perret, said today. Earnings exceeded the 689 million-euro average of six analyst estimates compiled by Bloomberg. Net income rose 11 percent to 403 million euros, also beating estimates.

“Recovery of sales combined with strict cost control and good execution of contracts enabled the operating margin to improve to 7.2 percent,” up from 6.7 percent a year earlier, Chief Executive Officer Patrick Kron said in the statement. He reiterated his forecast for sales and margin growth and positive free cash flow over the next three years.

Kron is seeking to stem a cash outflow of almost 1.1 billion euros over the past two fiscal years as the manufacturer added products and invested in faster-growing countries such as India, Russia, and China to tap rising infrastructure needs. Alstom rose as much as 4.9 percent in Paris, the most in three months.

Alstom had free cash flow of 101 million euros in the fiscal first half, following an outflow of 914 million euros a year earlier, the company said. That compares with 81 million euros estimated by analysts. Alstom has cut jobs in Europe and the U.S. to adjust to lower demand from local utilities and rail operators.

Cash Flow

Free cash flow will be positive in the second half and in each of the three fiscal years through March 2015, Kron said today.

“Alstom’s depressed valuation reflects investors’ concerns on the balance sheet,” said Gael de Bray, an analyst at Societe Generale in Paris, in a research note today. “These concerns should now diminish as free cash flow turned positive.”

Moody’s Investors Service cut Alstom’s long-term credit rating by one level in January 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.” Standard & Poor’s also has a negative outlook on Alstom’s BBB rating.

Alstom’s orders in the April-September period climbed 19 percent to 12.1 billion euros, led by demand for transport equipment. Revenue rose 4 percent to 9.75 billion euros, compared with 9.89 billion euros predicted by analysts.

Sales will probably increase by more than 5 percent a year through March 2015, helped by the backlog and rising capital expenditure in emerging markets, Alstom reiterated today. The operating margin is likely to gradually improve to about 8 percent of sales from 7.1 percent in the last fiscal year.

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