Siemens AG, Europe’s largest engineering company, will cut another 4,500 jobs after second-quarter profit fell more than analysts estimated, burdened by the declining oil price.
Profit from so-called industrial operations fell 4.9 percent to 1.66 billion euros ($1.9 billion), the Munich-based company said in a statement. That missed the 1.71 billion-euro average estimate of analysts surveyed by Bloomberg.
Chief Executive Officer Joe Kaeser, who is focusing Munich-based Siemens on energy generation and distribution, needs to cut costs as he faces mounting investor pressure after his decision to spend $7.6 billion acquiring oil and gas equipment specialist Dresser-Rand Inc. The latest round of job cuts brings the total announced since December to 13,100 -- representing about 4 percent of the workforce -- as Kaeser seeks to achieve 1 billion euros in annual savings by next year.
Since the dollar-denominated Dresser-Rand deal was agreed in September, the euro has tumbled 12 percent against the dollar and oil has fallen 29 percent, placing the rationale of the takeover in question. Dresser-Rand said Feb. 28 it would cut 8 percent of its workforce. The deal is awaiting regulatory approval from the European Commission.
The shares fell as much as 2.2 percent and were trading 2 percent lower at 94.87 euros as of 9:04 a.m. in Frankfurt. That pares the gains this year to 1.2 percent, valuing Siemens at 84 billion euros.
“On balance, the results are ’good enough’ in a quarter that was already flagged to be potentially difficult,” Morgan Stanley analyst Ben Uglow wrote in a note to clients.
The company said it’s facing a “persistently difficult environment in the global power-generation market,” meaning its power-and-gas division is hit by “regulatory changes, massive price erosion, aggressive competitors and regional overcapacities.”
Kaeser has to balance investor expectations and pressure from German labor representatives, who sit on Siemens’s supervisory board. Still, he said the company’s revamp is now almost completed with the latest job cuts.
“With the initiation of these measures, the company’s structural reorganization has been completed for the most part,” Kaeser said in the statement.
Of the job cuts announced today, 2,200 will come in Germany, adding to 2,900 positions already affected in its home market. Siemens said today it has units with sales totalling 15 billion euros it deems “underperforming”, with a combined loss representing about 3 percent of that revenue last year. They include businesses making electrical-transmission equipment and mechanical drives.
Revenue increased 8.1 percent to 18 billion euros in the second quarter. Siemens reaffirmed today it expects earnings per share to increase by at least 15 percent from 2014’s 6.37 euros, and a profit margin of between 10 percent and 11 percent at the industrial business.