Stadler Rail: Natural disasters have a high price

There have always been floods, but this year they have reached alarming proportions, particularly in Europe. The rail vehicle manufacturer Stadler Rail can sing a song about this, having been affected by the effects of such natural disasters in three areas so far this year.

Spanish suppliers are suffering

The most recent disaster, the flood in the Valencia region, was only a good two weeks ago. Stadler operates a large locomotive manufacturing plant with 3,000 employees in the southern Spanish city. It itself was unscathed, but the operations of around 30 suppliers south of Valencia were severely damaged. Due to destroyed roads and interrupted public transport connections, around 400 Stadler employees are still unable to reach their jobs in the locomotive factory.

At the end of June, the flooding of a factory belonging to the manufacturer of aluminum profiles Constellium in Sierre caused a stir at Stadler. The factory, which normally produces 9,000 tons per year of aluminum parts for the company, was only able to start delivering again at the end of October. According to Stadler’s estimates, the backlog in deliveries is likely to extend until the end of August 2025.

Due to flooding, a completed double-decker train for ÖBB in Dürnrohr, Lower Austria, was so badly damaged at the end of September that it had to be scrapped. The disruption caused by the natural disasters is forcing Stadler to shift activities to other plants within its own production network. Adjustments must also be made to suppliers and additional warehouses must be created. All of this takes time and costs money.

A product made up of thousands of individual parts

The production of rail vehicles is a highly complex undertaking. A train consists of 20,000 or more components. The individual parts come from a variety of suppliers, as Stadler, like other train suppliers, concentrates on assembling the vehicles.

If parts are missing, assembly quickly stalls, as Stadler had to experience painfully in the first two years of the corona pandemic. At that time, supply chains were disrupted worldwide. The effects of the recent natural disasters are far from being that serious, but the group was nevertheless forced to publish a profit warning on Wednesday evening after the stock market closed.

Due to delayed deliveries, which also affect the long-sluggish business with new subway trains for the Berlin public transport company, this year’s sales target of 3.5 to 3.7 billion francs is unlikely to be met. The margin at the operating result level (EBIT), which according to the previous target should reach the previous year’s level of 5.1 percent, will now be up to 2 percentage points lower, according to the company’s expectations.

Investors reacted with dismay on Thursday. Stadler’s share price, which has been on the decline for a year and a half, lost another 10 percent to just under 20 francs by midday. Analysts at Zürcher Kantonalbank said that the impact of the natural disasters “significantly” exceeded their fears.

At a short-term media conference, the Stadler management tried to calm minds in the presence of the Chairman of the Board of Directors and major shareholder Peter Spuhler. Markus Bernsteiner, the company’s CEO, assured that he would do everything he could to make up for the arrears as quickly as possible. He pointed out that we have experience with catch-up processes. In 2022, the company managed to make up for the Corona-related delays of the previous two years.

Stadler’s leadership may encourage itself with such words. Meanwhile, doubts are growing among investors as to whether the company, given all the problems, will finally be able to switch to a growth course and significantly increase profitability. Even before the current downward revision, industry observers at ZKB had assessed Stadler’s annual targets as “uninspiring”. In your opinion, a dividend cut can now be expected.

Management collects forecasts for the next two years

Another question is to what extent the rail vehicle manufacturer will be forced to cut its forecasts for the next two financial years. Until now, the company had promised shareholders that it would generate sales of at least 4 billion francs in 2025 and at least 5 billion francs in 2026. At the same time, the EBIT margin should be 7 percent in 2025 and up to 8 percent in 2026.

These objectives no longer apply with immediate effect. Management only plans to announce new forecasts at the annual media conference in the first quarter of next year.

Was going public a mistake?

The company now enjoys hardly any trust on the stock market. Investors who subscribed to Stadler shares at the issue price of 38 francs at the time of the IPO in April 2019 lost almost half of their investment.

Since the IPO, Spuhler still controls almost 42 percent of the capital. The longer the patron goes, the more he will have to ask himself whether it wasn’t a mistake to expose Stadler to the spotlight of the stock market. The company can’t do anything about the accumulation of natural disasters, but its complex business is not only too susceptible to fluctuations, but also not strong enough in terms of growth and too low in margins to appeal to investors.