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Alstom's Outlook Leaves Trains-to-Turbine Maker's Investors Cold

05/04/2012 | 12:41pm US/Eastern

-Alstom disappoints with 3-year sales and operating margin guidance

-Alstom shares fall 4.5%

-Alstom's orders rose 14% in the year through March

-Alstom's sales fell 5% in year to end-March while net profit rose 58%

(Rewrites, adds detail, background throughout)

By Inti Landauro


Alstom SA (>> ALSTOM), the French engineering group best known as a maker of high-speed trains and heavy-duty power equipment, Friday said it expects only modest rises in revenue and profitability over the next three years despite a bulging order book. The news left investors cold.

Alstom said it expects revenue will rise 5% a year over the next three years after falling 5% in the year ending in March 2012. The company said its operating margin will rise by just 0.9 percentage point over the same period to 8%.

That's well below the profitability of comparable businesses at its nearest rivals like General Electric Co. (GE), Switzerland's ABB Ltd. (>> Abb Ltd - Ord Shs) and Siemens AG (>> Siemens AG). The German industrial giant's conventional power-generation business has an operating profit margin of around 18% compared with Alstom's equivalent power unit's 9.7% margin.

Alstom, 30.7%-owned by French family-controlled conglomerate Bouygues SA (>> BOUYGUES), reported a 14% rise in orders in the year to March 31 to EUR21.71 billion. Alstom's order backlog reached EUR49.27 billion at the end of March, up from EUR47.38 billion three months earlier, due largely to strong demand in emerging markets for its power equipment.

"The Group achieved a solid commercial performance, illustrated by a book-to-bill ratio above one for every quarter of the fiscal year," said Chief Executive Patrick Kron.

But given the order backlog, the company's guidance is a bit disappointing, David Vos, analyst at Sanford C. Bernstein said. Management is perhaps just being extra cautious, Vos said. "I think they don't want to over promise and then under deliver."

Alstom shares closed 4.3% lower at EUR26.27, faring worse than the Paris bourse's benchmark CAC-40 index which was down 1.9%.

Alstom's net profit rose 58% to EUR732 million in the year to end-March as there was no repeat of restructuring costs that weighed down the previous year's performance but that was below the EUR817 million median expectation of analysts polled by data provider FactSet. Revenue fell 5% to EUR19.93 billion. Operating profit fell 10% to EUR1.41 billion.

Revenue from Alstom's thermal power fell 10%, while sales of Alstom's train division fell 8%. These declines were partly offset by rising revenues at its wind turbine and power-grid businesses.

Alstom's performance reflects the lagged impact of the financial crisis on its earnings due to the time it takes to build railroads and power plants. Several projects were put on hold in late 2008 and 2009 in rich countries, hitting Alstom's orders at a time when it was still benefiting from business signed before the crisis struck. Only recently has demand taken off again, mostly in emerging markets which now represent 60% of Alstom's orders.

Though Alstom's outlook wasn't particularly inspiring, the year to end-March does looks like the trough in its business cycle, Alfred Glaser, analyst at French brokerage house Cheuvreux.

-By Inti Landauro, Dow Jones Newswires; +33 1 4017 1740; inti.landauro@dowjones.com

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Stocks mentioned in the article : ALSTOM, Siemens AG, Abb Ltd - Ord Shs, BOUYGUES
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