Recent floods in Europe have severely impacted Stadler Rail, with significant damage to about 30 suppliers in Spain and disruptions to production from flooding at an aluminum plant. This has led to delivery delays and a profit warning, with anticipated sales targets now at risk. Investor confidence is declining, reflected in a 10% drop in stock price, while future revenue projections for the company are also under scrutiny, raising concerns about its growth potential.
Impact of Recent Floods on Stadler Rail
Floods have always been a part of nature, but the scale of this year’s flooding, particularly in Europe, has raised significant concerns. Stadler Rail, a prominent rail vehicle manufacturer, has felt the brunt of these natural calamities across three different regions this year.
In Spain, suppliers are facing dire challenges due to recent flooding in the Valencia region, which occurred just over two weeks ago. Stadler’s large locomotive manufacturing facility, located in southern Spain and employing 3,000 people, remained untouched; however, around 30 suppliers in the southern Valencia area suffered considerable damage. Furthermore, approximately 400 Stadler employees are unable to reach the locomotive plant due to destroyed roads and disrupted public transport services.
Production Challenges and Financial Implications
The repercussions of flooding have also impacted Stadler’s operations in other locations. In June, flooding at Constellium’s aluminum profile manufacturing plant in Siders caused significant disruptions. This facility typically produces 9,000 tons of aluminum components for Stadler annually, but it won’t be able to resume deliveries until late October. Stadler anticipates that delivery backlogs may extend until August 2025.
Moreover, a completed double-decker train intended for ÖBB in Dürnrohr, Lower Austria, was rendered unusable due to flood damage and had to be scrapped. As a result of these natural disasters, Stadler is compelled to reorganize its production activities and make adjustments with suppliers, which includes establishing additional warehouses. All of these changes require time and incur substantial costs.
The manufacturing of rail vehicles is an intricate process, consisting of over 20,000 components sourced from various suppliers. Assembling these vehicles is Stadler’s primary focus, but missing parts can halt production, as experienced during the early stages of the COVID-19 pandemic. While the recent natural disasters haven’t caused disruptions on the same scale, they have still led Stadler to issue a profit warning after the stock market closed on Wednesday.
Owing to delays in deliveries, which also affect the sluggish new subway train business for Berlin’s transport authorities, Stadler’s sales target of 3.5 to 3.7 billion francs for the year is now in jeopardy. The operating profit margin (EBIT), previously expected to match last year’s 5.1 percent, is now projected to drop by up to 2 percentage points.
Investor reaction was swift, with Stadler’s stock price falling by an additional 10 percent, closing at 20.20 francs. Analysts from Zürcher Kantonalbank (ZKB) noted that the impact of the natural disasters had “significantly” surpassed their expectations.
In a hastily arranged press conference, Stadler’s management, alongside Chairman Peter Spuhler, aimed to reassure stakeholders. CEO Markus Bernsteiner emphasized the company’s commitment to mitigating delays swiftly, drawing on their experience from recovering from COVID-related disruptions in 2022.
Despite these reassurances, investor confidence is waning regarding Stadler’s ability to return to a growth trajectory and enhance profitability amid ongoing challenges. Even before the recent downward revisions, ZKB industry analysts had already deemed Stadler’s annual targets as “uninspiring,” and now expect a dividend cut.
Looking ahead, there are growing concerns about how much Stadler may need to adjust its forecasts for the upcoming business years. Previously, the company had promised shareholders a revenue of at least 4 billion francs by 2025 and at least 5 billion francs by 2026, with an EBIT margin target of 7 percent in 2025 and up to 8 percent in 2026. These projections are now in question, and management plans to reveal new forecasts during the first quarter balance sheet press conference next year.
Trust in the company remains low on the stock market. Investors who purchased Stadler shares at the initial public offering price of 38 francs in April 2019 have seen their investment nearly halved. Since the IPO, Spuhler has maintained control of just under 42 percent of the company’s capital. He may soon need to reconsider whether exposing Stadler to the stock market spotlight was a wise decision. While the company cannot be blamed for the convergence of natural disasters, the complexity of its operations appears too volatile, lacking both growth potential and margin strength to attract investors.