Siemens AG (SIE), Europe’s largest engineering company, said reaching its full-year earnings goal has become harder after reporting fiscal third-quarter profit and sales that fell short of analysts’ estimates.
It has become “clearly more ambitious” to reach the target of 5.2 billion euros ($6.31 billion) to 5.4 billion euros in net income from continuing operations, Munich-based Siemens said today. Profit on that basis climbed to 1.23 billion euros in the three months ended June 30, from 763 million euros a year earlier. The average estimate of nine analysts surveyed by Bloomberg was 1.4 billion euros.
Siemens shares dropped the most in six months in Frankfurt as lower-than-expected orders highlighted caution among customers. Siemens cut its earnings forecast from 6 billion euros in April after delays in linking up off-shore wind parks to Europe’s power grid resulted in charges. Its outlook contrasts with that of ABB Ltd. (ABBN), which today said it’s more optimistic about its targets than three months earlier.
“The market seems to no longer believe that the lower band of the profitability goal is attainable,” said Sjoerd Ummels, a Brussels-based ING analyst with a hold recommendation on the stock. Declining industrial profitability means Siemens must “address capacity being out of sync with underlying demand.”
Siemens traded 2.7 percent lower at 64.60 euros as of 11:42 a.m. The stock is down 13 percent this year, cutting the company’s market value to 59 billion euros. ABB climbed as much as 4 percent today.
Revenue exceeded the value of future orders received for the second consecutive quarter, with the book-to-bill ratio declining to 0.91. That doesn’t augur well for the coming months, Ummels said.
Given the 3.6 billion-euro profit reported in the nine months to the end of June, Siemens will have to generate 1.6 billion euros in the fourth quarter to reach the bottom end of its full-year target, about 30 percent more than it has on average earned in the previous quarters this year.
Sales in the third quarter rose 10 percent to 19.5 billion euros, as the energy and health-care divisions drove profit higher. Siemens had costs last year that depressed earnings.
An initial share sale in the Osram lighting unit has now been all but scrapped in “overwhelming” favor of a spinoff that would allocate Osram shares to existing Siemens stockholders, the company said today. The unit’s IPO was initially delayed in September, and the spinoff would likely happen in early 2013, after approval at the January shareholders’ meeting. Siemens is the world’s second-largest maker of lighting equipment behind Royal Philips (PHIA) Electronics NV.
A spinoff would mean the public listing of Osram will be “more independent of capital market conditions,” and give the business more flexible financing options, Siemens said.
Chief Financial Officer Joe Kaeser has cautioned that Siemens would experience a “rocky road” to meet its goals, with China set to remain weak until 2013. ABB, the Swiss maker of factory robots and power transmission equipment, said today it’s more confident about its short-term outlook as China starts to rebound. Net income at the Swiss company fell 27 percent to $656 million.
Siemens, which was founded in 1847, plans to implement a cost-saving program, whose details are still being developed, in order to make the company more “lean, fast and agile”, Loescher said in a conference call with journalists.
Details will be announced once it has been presented to senior management, and will entail more than simply cutting jobs, he added.
Siemens’s new orders fell 23 percent from a year earlier to 17.8 billion euros, mainly after the company had booked a 6 billion-euro train order from Deutsche Bahn AG last year, which Siemens said was the largest order in its history.
Growth at the health care and energy sectors led the profit increase, with profit climbing to 396 million euros at health care and to 683 million euros at the energy unit. The industry division’s profit declined 26 percent to 523 million euros, while the infrastructure and cities segment saw profit hold steady at 215 million euros.
“The development looks like it will continue to be under pressure this year,” Heinz Steffen, an analyst at Fairesearch in Kronberg, Germany, said by telephone. “That’s particularly the case in the industry segment, and other sectors such as infrastructure and cities don’t look to be progressing either.”
General Electric Co. (GE), based in Fairfield, Connecticut, said July 20 its earnings from continued operations advanced 7 percent to $4.01 billion, exceeding analyst estimates, as declining wind-turbine demand failed to stop energy earnings growing and the financing arm’s profit grew by a third.
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