Schindler Goal Cut Leaves Incoming CEO Napoli Rebuilding Task

Schindler Holding AG (SCHP) cut its profit target for the second straight quarter, handing Silvio Napoli the task of rebuilding confidence in the Swiss elevator maker when he becomes chief executive next year.

Shares of the Ebikon-based company slumped as much as 7.2 percent after Schindler forecast net income of as much as 550 million francs ($605 million) this year, including a 155 million-franc charge on its investment in Hyundai Elevator Co. It earlier predicted a maximum 600 million francs in profit.

Napoli needs to boost margins and fine-tune Schindler’s expansion strategy as costly investments in China and India weigh on profitability. Schindler brought forward the announcement of third quarter earnings by a week to inform the market “as soon as possible” about lower-than-expected profits, CEO Juergen Tinggren said on a call.

“With today’s announcement the market will lose confidence that the anticipated acceleration of growth can come with stable or even increasing margins,” Andy Schnyder, an analyst at Bank Vontobel AG in Zuerich wrote in a note to investors. “We expect consensus to move downwards by 5 percent to 10 percent for the next three years.”

Asian Importance

Schindler said last month that Tinggren will join Chairman Alfred Schindler as an executive director on the board while Napoli, who has led Schindler’s Asia-Pacific business since 2008, will be promoted to CEO partly because of his knowledge of key Asian markets.

Expenses tied to expansion in growth markets, delays in the execution of cost cuts, and pricing pressure contributed to lower operating profit than the company was forecasting. Third-quarter operating profit dropped 18 percent to 212 million francs, also below management expectations, held back by weak currencies in important markets such as the U.S, Brazil, India, and Australia.

The Swiss company is starting production at the world’s largest escalator plant in Jiading, China at the end of this year, as well as expanding production in India, Slovakia and the U.S. Schindler reiterated a forecast of 7 percent sales growth in local currencies for the full year, Ammann said.

Investments

The company will book restructuring costs of about 25 million francs in the fourth quarter from cutting capacity in certain markets, finance chief Erich Ammann said.

“Large investment programs in China and India are progressing as planned,” Tinggren said on the call, adding that these are increasing costs this year without immediate benefits.

The shares dropped as much as 9.5 francs to 123.4 francs, the biggest intraday fall since August 2011. The stock was down 5.8 percent to 125.2 francs at 10:34 a.m. in Zurich trading. Volume traded was more than three times the three-month daily average.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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