Alstom plunges as it slashes outlook second time in 2026

By Hugo Lhomedet and Jakob Van Calster

Nov 2 (Reuters) - French train maker Alstom slashed its full-year outlook and launched a €2 billion ($2.2 billion) debt cutting plan on Monday, sending its shares sharply lower, after a review of troubled projects uncovered deeper-than-expected problems in Germany.

The warning marks the second major setback under CEO Martin Sion, who took over in April promising to improve execution and restore investor confidence. Alstom scrapped its three-year free cash flow target and cut its annual profitability forecast within weeks of his appointment.

The group's shares plunged 25% by 1130 GMT to the bottom of Europe's benchmark STOXX 600 index.

Alstom said its adjusted core profit margin was around -4% in the first half of the financial year that started in April, compared with +6.4% a year ago, as it cut the full-year forecast to around 1% from an earlier 6.5%.

It also warned of a cash burn of €1.5 billion ($1.7 billion) this year, having previously guided for a positive free cash flow. Citi analysts said the forecasted outflow was equivalent to roughly 20% of Alstom's market value.

GERMAN PROJECTS

The problems centre on six Coradia Max regional train contracts in Germany with a combined worth of around €5 billion, which Alstom had expected to drive much of its production growth this year.

The contracts were originally structured so that certification work on the first train would support approvals for the remaining five. Delays to that initial project have pushed back the wider programme, with the first certification now expected only in March 2028.

Alstom management said all six contracts were now loss-making, attributing the setback to a combination of technical challenges, project-management shortcomings and stringent contractual terms.

Alstom also said it had paused production earlier in 2026 after identifying technical issues that required trains already built for the programme to be retrofitted.

BALANCE SHEET IN FOCUS

The latest cash warning is likely to intensify scrutiny of Alstom's balance sheet, as the management announced a new deleveraging plan aimed at preserving its investment-grade credit rating.

It said a large part of the planned debt reduction would come from "inorganic" measures. It has already begun reviewing assets and expects to provide details at its Capital Markets Day in spring 2027.

"We view this as a painful but necessary clearing event," JPMorgan analysts said in a note to investors.

Alstom's five-year credit default swaps, a form of insurance that protects investors against a company defaulting on its debt, jumped to around 130 bps, their highest level since May 2024.

Intraday trading, however, remained far below the levels seen in 2023, when concerns over Alstom's balance sheet, stemming from its 2021 acquisition of Bombardier's rail business, drove CDS spreads to nearly 250 bps.

($1 = 0.8948 euros)

(Reporting by Hugo Lhomedet and Jakob Van Calster in Gdansk, additional reporting by Diana Mandia, editing by Milla Nissi-Prussak)