Bloomberg News

Schneider to Resume Acquisitions to Sustain Earnings

August 01, 2012

Schneider Electric SA (ALO), among the most acquisitive electrical engineering companies until a year ago, said it will resume purchases after completing the integration of past deals that helped lift first-half profit.

“We were in integration mode” in the first half, Chief Financial Officer Emmanuel Babeau said in a telephone interview today, after Schneider reported profit that beat analysts’ estimates. “We will return to a normal situation” in terms of acquisitions “because this special focus on integration is more behind us now.”

Schneider spent $3.8 billion last year on takeovers that included Spanish software company Telvent GIT SA and an Indian maker power-storage systems. The pace of acquisitions has picked up among engineering companies, with ABB Ltd. (ABBN) buying Thomas & Betts Corp. for $3.9 billion in January and saying it has billions in reserve for more takeovers in coming years.

The shares of Schneider, based in Rueil-Malmaison near Paris, rose as much as 1.87 euros, or 4.1 percent, to 47.9 euros in Paris, and traded at 47.51 euros as of 9:58 a.m. The stock has gained 16 percent this year, valuing Schneider at about 25.9 billion euros. Larger competitor Siemens AG (SIE) has lost 5.6 percent in 2012 after lowering its earnings guidance once.

The company reported net income rose 11 percent to 890 million euros ($1.09 billion) in the first half, beating an estimate of 844 million euros in an analyst survey by Bloomberg. Revenue climbed 10 percent, helped by acquisitions and the euro’s decline against the dollar and the Chinese yuan.

Meeting Goals

Schneider is on track to meet its financial goals this year, including at least matching last year’s revenue figure, Chief Executive Officer Jean-Pascal Tricoire said, adding that the outlook for many markets has become clouded by economic threats. Siemens, Europe’s largest engineering company, said on July 26 that reaching its profit target had become harder.

“The uncertain world economic outlook and mixed business trends in the group’s key markets continue to limit near-term visibility,” Tricoire said in a statement.

Tricoire said last year in April that Schneider would make smaller deals a priority and that no major acquisitions were planned for that year. Large purchases are “very, very rare,” and riskier to execute, he said at the time, responding to reports that he was weighing a bid for Tyco International Ltd. (TYC:US)

The company is confident in meeting its profitability target this year because sales tend to be higher in the second half, CFO Babeau said. The second-half margin has historically been about 1.5 percentage points higher, he said.

For the full year, price increases should add about 200 million euros to profit, the CFO said. Productivity gains, which amounted to 120 million euros in the first half, should total 250 million euros to 300 million euros, he said.

The company’s expecting “a large cash flow” in the second half, because more cash is generated in that period after Schneider paid its dividend in the first six months, Babeau said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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