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Schneider Falls as Weaker Utilities Demand Curbs Margin

July 30 (Bloomberg) -- Schneider Electric SE, the world’s biggest maker of low- and medium-voltage equipment, fell the most in nine months as weaker demand from western European utilities and the stronger euro curbed first-half margins.

Adjusted earnings before interest, taxes and amortization were little changed at 1.5 billion euros, representing 12.9 percent of Schneider’s revenue, compared with a restated 13.3 percent a year earlier, the company, based in Rueil-Malmaison near Paris, said in a statement today. Analysts had forecast 1.54 billion euros, the average of four estimates compiled by Bloomberg.

“The fact that the main disappointment is sector-specific, i.e. European utilities, may raise some questions on full-year guidance,” Ben Uglow, an analyst at Morgan Stanley, said in a research note. “Excluding FX, underlying margin performance was reasonable.”

Schneider, which reiterated its forecasts for 2014, is cutting costs and stepping up the “rationalization” of its offering to adapt to a French construction slump and falling infrastructure investment in western Europe. It’ also adding more manufacturing and support functions in faster-growing markets to be less exposed to the euro’s appreciation that’s curbing sales and profitability.

The stock fell as much as 4.2 percent, the steepest intraday decline since Oct. 25, and traded 2.9 percent lower at 65.48 euros at 1:18 p.m. in Paris.

Forecast Reiterated

Schneider confirmed its prediction for low single-digit organic sales growth this year, and a 0.4 percentage point to 0.8 percentage point advance in adjusted Ebita margin, excluding currency effects, from the 2013 pro forma level of 13.9 percent, which includes Invensys Ltd, acquired this year. The negative currency effect is still estimated at 0.4 percentage points for 2014, the company said.

The depreciation of the dollar and some emerging market currencies against the euro shaved 162 million euros off first-half Ebita and will probably chip off 20 million euros to 40 million euros in the second half, the company said.

“We expect continuous growth of our early cycle businesses, sequential improvements in IT and Infrastructure and a strong contribution from Invensys,” Chief Executive Officer Jean-Pascal Tricoire said.

First-half net income declined 1 percent from a year earlier to 821 million euros, beating analyst estimates. The company benefited from the purchase in January of Invensys, a U.K. maker of software and control systems used in the chemical, oil and gas, and mining industries.

Stronger Euro

Second-quarter revenue fell 0.7 percent to 6.14 billion euros, hurt by falling demand from utilities in France, Germany and Spain, delayed investment in Russia, South-east Asia and Africa, and the stronger euro.

“We’ll continue to adapt our capacity and size of teams everywhere in the world,” Emmanuel Babeau, deputy CEO in charge of finance and legal affairs, said in an interview today. “In western Europe, demand from utilities collapsed due to uncertainties linked to the debate around the energy transition.”

In emerging markets, utilities also delayed infrastructure projects as falling local currencies created “uncertainties” over the profitability of projects, or amid elections, Babeau said. European and U.S. sanctions against Russia “are also creating uncertainties.”

Schneider said today it will buy back about 6 million shares in the second half.

(An earlier version of this story corrected the analyst forecast figure in the second paragraph.)

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

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Kim McLaughlin, Robert Valpuesta

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