Moody’s cuts Alstom outlook to negative, affirms rating at Baa3
Key Facts
Moody’s affirmed Alstom’s rating at Baa3 on November 9 but cut its outlook from stable to negative, according to Dow Jones coverage via Zonebourse. The decision followed the company’s disclosure of execution problems on projects linked to Germany, particularly the Coradia Max platform. The coverage said Moody’s sees a risk that key credit metrics will be difficult to restore to levels consistent with the rating over the next 12 to 18 months. The agency therefore kept the rating unchanged but pointed to mounting pressure on the company’s credit trajectory. The change coincides with a sharp deterioration in the operating and cash performance Alstom reported for the first half of its fiscal year.
Preliminary results for the first half of fiscal 2026/27 showed an adjusted EBIT margin of about negative 4%, compared with 6.4% in the same period a year earlier. Alstom attributed the decline largely to adjustments to gross margins on projects linked to Germany. The company said manufacturing challenges and extended certification procedures for Coradia Max trains affected performance, alongside technical issues and additional testing requirements. Execution problems also affected other projects linked to Germany. These factors put project performance at the center of the concerns cited in the coverage as grounds for Moody’s outlook change.
Free cash flow outflow was 1.248 billion euros in the first half of the fiscal year, which Alstom said reflected the seasonality of cash flows. The company added that some milestone payments and advance payments were received earlier, partially easing cash consumption compared with its expectations for the first half. Alstom cut its adjusted EBIT margin guidance for fiscal 2026/27 to about 1%, from about 6.5% previously. The new guidance means the company expects a margin of about 6.5% in the second half, offsetting the weakness recorded in the first half. The gap between preliminary performance and the previous forecast shows the scale of the adjustment that project problems imposed on operating expectations.
Alstom revised its free cash flow forecast for fiscal 2026/27 to a deficit of 1.5 billion euros, from previous guidance pointing to positive cash flow. The company said the main reason was the shift of milestone payments to later fiscal years as projects’ certification and commercial entry were delayed. It also cut its target for rolling stock production in the fiscal year to about 4,000 units, compared with a previous forecast of between 4,400 and 4,500. The company had reaffirmed an adjusted EBIT margin forecast of about 6.5% for the fiscal year in July, before announcing the new adjustments after first-half difficulties emerged. The expected production decline, alongside pressure on cash and margins, puts execution challenges at the heart of the review of Alstom’s ability to restore metrics consistent with its rating.
A comparison with the previous fiscal year shows free cash flow fell to 336 million euros in 2025/26 from 502 million euros in the year before, despite sales of 19.2 billion euros. Sales grew 4% on a reported basis and 7% organically at the time, according to Alstom’s results. In the first quarter of 2026/27, sales rose to 4.734 billion euros from 4.514 billion euros in the corresponding period, but orders fell to 2.560 billion euros from 4.075 billion. The figures highlight a divergence between sales growth in previous periods and the decline in orders, followed by pressure on margins and liquidity. JPMorgan analysts said the scale of the warning was a “real surprise” and cut their recommendation on the stock from overweight to neutral.
On financial measures, Alstom said it had begun a review of organic and inorganic options aimed at reducing debt by about 2 billion euros by September 2027, with board shareholders supporting the review. First-half results are scheduled for publication on November 17, 2026, followed by third-quarter orders and sales figures on January 19, 2027. The company will present its long-term operational and strategic plan and its medium-term outlook at a capital markets day in the second quarter of 2027. These dates put the debt-reduction review and upcoming results on the monitoring path for the pressures that led Moody’s to turn its outlook negative. The first-half results will be the first announced milestone following the revised forecasts.