Alstom's operating margin slipped to 4.2% and free cash flow swung to a €1.4 billion outflow. The second-half target of €500 million in cash flow depends on 2,100 train deliveries and a €1 billion cost plan.
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Alstom's stock has drifted lower since its last earnings report, and the numbers explain why.
The French train maker reported a 5% rise in first-half sales to €8.5 billion, but the operating margin slipped to 4.2% from 4.8% a year earlier. The miss came from project execution costs on older contracts and a weaker mix in rolling stock sales, the company said in its Nov. 8 presentation.
Free cash flow turned negative at €1.4 billion for the half, worse than the €400 million outflow the market had expected. Alstom blamed the gap on a buildup in working capital tied to ramping production for a record order book. The backlog now sits at €92 billion, the highest in the company's history.
CEO Henri Poupart-Lafarge told analysts on the call that the company expects free cash flow to turn positive in the second half, driven by scheduled train deliveries and a normal swing in working capital. The target is for at least €500 million in free cash flow for the full fiscal year ending March 2025.
The cash flow pressure has been Alstom's central problem since it acquired Bombardier Transportation in 2021. The integration added €6 billion in net debt and a portfolio of older, low-margin contracts. Alstom has since won €15 billion in new orders at higher margins, but the legacy projects still drag on cash conversion.
Delivery schedules are the variable to watch. Alstom has 2,100 trains in production across 36 countries. The second-half cash flow target assumes on-time delivery of several large orders, including 146 Coradia Stream trains for Italy's Trenitalia and 58 Avelia Horizon high-speed trains for France's SNCF. Any delivery delays would push working capital outflows into the next fiscal year.
The company also has a €1 billion cost-cutting plan running through 2026, targeting procurement savings and factory consolidation. So far, the plan has delivered €400 million in annualized savings, Alstom said, with the rest expected by the end of next year.
Alstom shares trade at 15 times consensus earnings for the current fiscal year, a discount to Siemens Mobility's 20 times. The gap reflects the cash flow uncertainty, not the order book growth.
The next concrete check point comes in January, when Alstom reports third-quarter sales and confirms whether the delivery schedule is on track.
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