Siemens Profit Misses Estimates as Looming Slump Threatens Goals
January 25, 2012, 1:55 AM ESTBy Richard Weiss
Jan. 24 (Bloomberg) -- Siemens AG, Europe’s largest engineering company, reported earnings that missed estimates as profitability dropped at its four main units, and predicted that Europe will slip into recession in the coming months.
Net income from continuing operations fell 27 percent to 1.36 billion euros ($1.77 billion) in the fiscal first quarter, Munich-based Siemens said in a statement today. That missed the average estimate of 1.47 billion euros in a Bloomberg survey of analysts. New orders also dropped, and Chief Executive Officer Peter Loescher said making this year’s targets will be harder.
The European economy will encounter a “mild” contraction in coming quarters, and Siemens will work to capture growth in the U.S. and emerging markets, where growth has held up, Loescher said in an interview. Siemens is among the first major industrial companies to report earnings for the final three months of 2011, offering a glimpse into the health of global demand with products spanning trains, power turbines, medical scanners and factory automation gear.
“The numbers were softer on all metrics,” said Ingo- Martin Schachel, an analyst at Commerzbank in Frankfurt. “Siemens now needs a strong second half to reach it’s goals, and the cyclical businesses must hold up."
Shares of Siemens fell 3.3 percent to 75.82 euros as of 9:04 a.m. in Frankfurt. That’s the biggest intraday slide since Nov. 1.
Industry Scarred
The order intake in the three months through December fell 5 percent to 19.81 billion euros, the second consecutive decline, while sales advanced 2 percent to 17.9 billion euros. That compares with the average analyst estimate of 20.48 billion euros for orders, and 18.27 billion euros for sales. Siemens generated 43 percent of its revenue in Europe last year, and 20 percent in the U.S.
‘‘The uncertainties of the ongoing debt crisis have left their mark on the real economy,” Loescher said. “Although a recovery is expected in the second half of the year, we must work hard to achieve our goals.”
For now, Siemens reiterated it expects “moderate organic sales growth” this year, while order growth will outpace sales, with net income from continuing operations of about 6 billion euros. Siemens’s order backlog reached a record 102 billion euros.
The German company, which added 3,000 workers in the quarter, will “aggressively” drive growth through capital expenditure, Chief Financial Officer Joe Kaeser said at a press conference. Sales in the current quarter will rise moderately, while profitability may be held back by charges for job cuts at the company’s telecommunications venture with Nokia Oyj.
The company booked 203 million euros in charges at its power transmission division amid delays in connecting five offshore wind parks to the power grid. It also booked 69 million euros for delays of a German train order. Profitability at its four main subsidiaries dropped in the quarter.
Purchase Plans
Profit at the energy businesses fell 36 percent to 481 million euros, as the renewable energy and the power transmission units swung to losses. Renewable energy will post a profit in the second quarter, CFO Kaeser said. Fossil power generation increased profit by 22 percent to 580 million euros.
Earnings at the industry businesses declined 13 percent, while profit fell 4 percent in health care. The infrastructure unit that caters to cities and municipal clients, a division that Siemens recently created, saw profit tumble 36 percent.
Orders for major equipment are becoming harder to secure, while the so-called “early-cycle” business is holding up, Loescher said. Siemens’s cash reserves are a bonus as clients turn to solidly capitalized partners for financing, he said.
Acquisitions Hunt
Siemens may target bolt-on acquisitions, after multiples on potential targets have become more attractive. Loescher has refrained from major takeovers in recent years, and the company was forced to write down the value of some acquisitions in areas including health care and solar energy.
Siemens still expects to sell shares in its Osram lighting unit, where sales grew 7 percent in the quarter, during the calender year 2012, CFO Kaeser said. Osram’s net income rose 3.6 percent to 115 million euros in the quarter.
--With assistance from Linzie Janis in London. Editors: Andrew Noel, Thomas Mulier
To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net
To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net
