Siemens AG (SIE) reported quarterly profit that missed analysts’ estimates after booking charges, a rare lapse by Chief Executive Officer Peter Loescher as he embarks on his second term leading Europe’s largest engineering company.
Net income from continued operations fell 47 percent to 763 million euros ($1.1 billion) in the third quarter ended June 30, falling short of analysts’ expectations for the first time in eight quarters. Charges for a health-care business, a computer services unit and a fine paid to Areva SA exceeded 1.4 billion euros. Siemens fell as much as 3.5 percent in Frankfurt, the most in a month.
Loescher, whose contract was extended yesterday, built a reputation in his first term on a more reliable performance, after earnings under his predecessors were notoriously hard to predict as Siemens bought and discarded assets. Loescher, who declared an overhaul a thing of the past in November and said Siemens had finally become a “normal” company, cautioned today that support from a rebounding economy is starting to fade.
“The last couple of months have felt extremely retro,” said Ben Uglow, an analyst at Morgan Stanley, who has an “overweight” rating on the stock. “This is the worst quarter in three years in terms of earnings quality.”
The maker of trains, turbines and factory drives is absorbing higher costs and exiting some businesses as Loescher prepares for slowing growth. The executive spent much of his first term trimming costs and shedding assets, and the CEO aims to outgrow rivals and elevate sales to 100 billion euros. 53- year-old Loescher became the first outsider ever to run Siemens after a bribery scandal swept out his predecessors.
Siemens fell as much as 3.15 euros to 88 euros in Frankfurt. The stock had fallen 1.7 percent this year before today, valuing Siemens at about 83.33 billion euros.
The company reiterated profit will exceed 7.5 billion euros for the year ending Sept. 30. The forecast excludes a 648 million-euro penalty to Areva in the quarter. Siemens booked 381 million euros in charges at the particle-therapy unit, an advanced cancer treatment, and 350 million euros related to the sale of its computer services unit to Atos SA of France.
Profit margins fell below 10 percent in all of Siemens’s energy divisions, from double-digit levels last year. Fossil power posted a loss on the Areva payment. Siemens said pricing pressure is eating into the renewable-energy division, which will have to settle for single-digit margins. The solar business has struggled to meet company expectations.
“The biggest profit impact is clearly the one-offs, which are surprisingly high in health care,” said Ingo-Martin Schachel, an analyst at Commerzbank AG in Frankfurt. “In renewable energy and power transmission, business is clearly getting more difficult and pricing pressure is high.” Schachel recommends clients hold Siemens shares.
Loescher predicted the company will focus on organic growth and add-on acquisitions to expand this year as Siemens considers how to put its record cash to work. While markets continue to be “robust,” risks are increasing in the global economic environment, Loescher said today.
Not Prime Time
Sales in the quarter rose 2 percent to 17.84 billion euros, lifted by higher revenue from the industrial businesses. New orders jumped 20 percent, propelled by an agreement to supply German rail operator Deutsche Bahn AG with as many as 300 trains, Siemens’ largest contract to date.
Currency fluctuation reduced growth in sales and order intake by five percentage points in the quarter, as the euro strengthened against the U.S. dollar, Siemens said.
The charges in particle therapy add to some 378 million euros accumulated since 2008, bringing the total to 759 million euros. The technology is “not ready for prime time yet,” Loescher said in an interview with Bloomberg Television. Siemens treated just above 400 patients with the technology.
The Osram lighting business contributed 56 million euros in profit in the quarter, a 24 percent drop, on revenue that was little changed at 1.16 billion euros. Osram sales climbed 7 percent when adjusted for currency swings, while operating profit dropped 48 percent to 61 million euros, Chief Financial Officer Joe Kaeser said.
Siemens plans to sell the unit to investors later this year, attempting one of the biggest share sales in Germany in a decade. The plans for Osram’s public offering are unchanged, Kaeser and Loescher told journalists on a call today.
Amsterdam-based Royal Philips Electronics NV, the No. 1 lighting company, on July 18 cut its outlook for sales growth in the global lighting market to as little as 5 percent per year until 2015, from an earlier prediction of as much as 9 percent.
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