July 28 (Bloomberg) -- Siemens AG will replace Chief Executive Officer Peter Loescher after Europe’s biggest engineering company repeatedly missed profit targets and charges mounted for failed power and train projects.
On July 31, Siemens’s supervisory board will decide on the “early departure” of Loescher and the “appointment of a member of the managing board as President and CEO,” the Munich-based company said yesterday. Chief Financial Officer Joe Kaeser is likely to take the helm after supervisory board members met yesterday to discuss the leadership, according to three people familiar with the talks, who asked not to be identified because the decision hasn’t been confirmed.
Loescher, 55, appointed in 2007 to clean up after the biggest corruption scandal in German history, on July 25 cut a profit forecast for the fifth time in his six-year tenure. The Austrian native, who joined Siemens from drugmaker Merck & Co. as the first CEO hired from outside the company, has presided over a failed push into environmentally friendly energy that led to spiraling costs. He also had to write down the value of several acquisitions.
“It would make sense to pick an internal candidate, since it will be very important that the new CEO knows the company, its culture and peculiarities well already,” Frankfurt-based Commerzbank AG analyst Ingo-Martin Schachel, who has an add recommendation on the shares, said by e-mail. “The natural choice, in my view, would be Kaeser.”
Kaeser, 56, joined Siemens in 1980, holding a series of administrative and financial jobs in a career that took him to Malaysia and California. He became chief strategy officer in 2004 before being promoted to the top finance job in 2006.
Siemens said July 25 it no longer predicts an operating profit margin of at least 12 percent of sales in the 12 months through September 2014. The profit goal was set last November as part of a 6 billion-euro ($8 billion) savings plan. Siemens had a profit margin of 9.5 percent in 2012, when ABB Ltd. and General Electric Co. had margins of 10.3 percent and 15 percent respectively.
The forecast was abandoned after a majority of units said in their internal predictions that they will probably miss their goals, two people familiar with the matter said. The gap in so-called sector profit between the forecast and the actual numbers is currently 1.5 billion euros, one person said. Loescher told Sueddeutsche Zeitung in an interview reported on July 26 that he won’t resign and that his contract runs until 2017. A Siemens spokesman confirmed his comments.
Last year, Loescher acknowledged that he had been slow to react to the economic downturn and the company pinned the latest forecast cut on “lower market expectations.”
“I’m underweight on Siemens and am glad that I am,” Carsten Hilck, a fund manager at Union Investment, which holds less than 1 percent of Siemens shares, said before Loescher’s departure was announced. The recent profit target cut was “not unexpected. This sort of thing can always happen at Siemens and it doesn’t seem to be getting any better,” he said.
Siemens shares on July 25 dropped as much as 7.6 percent, the biggest decline since March 2009, erasing 4.4 billion euros of market value.
By contrast, competitor GE reported second-quarter profit that beat analyst estimates, as demand for jet engines and oil-and-gas drilling equipment drove the order backlog to a record. The Fairfield, Connecticut-based company also affirmed its 2013 forecast.
Loescher took over from Klaus Kleinfeld, who announced his departure in April 2007 after 2 1/2 years following a bribery investigation at the company.
The appointment of an outsider was heralded as a “cultural revolution’ by German shareholder group DSW and marked a shift at Siemens, whose reputation had been battered by the probe into consulting contracts.
Loescher, who has an MBA from Harvard Business School and has worked for drug companies most of his career, became president of Merck’s Global Human Health Unit in April 2006. In that role, he had overseen 35,000 employees and been responsible for worldwide marketing and sales at the U.S. drugmaker.
At Siemens, which has 405,000 employees and manufactures products from trains to power turbines to x-rays, Loescher also faced criticism from his own workers. In anonymous postings on Siemens’ internal discussion forum, employees on July 23 called for CFO Kaeser to replace him, according to screenshots obtained by Bloomberg News.
Loescher told employees this year that it’s fair to judge him on his efforts to improve profitability at Siemens, which was Germany’s biggest company by market capitalization between July 2009 and July 2012 before it was overtaken by software maker SAP AG.
Thornburg Investment, which at the end of May had the 13th-biggest Siemens shareholding, according to data compiled by Bloomberg, sold its stake, according to Managing Director Bill Fries. “We changed our view,” he said by phone.
Siemens’s fiscal third-quarter profit through June has been hurt by about 100 million euros in costs for faulty wind turbines, people familiar with the matter said. Siemens is scheduled to report earnings on Aug. 1.
The new charges add to provisions of 550 million euros for offshore power transmission problems and delays in train deliveries reported earlier this year. In June, Siemens said it will close its solar power unit following losses of at least 784 million euros since 2011. The unit could erode earnings by 500 million euros this year, it said in May.
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