Siemens Said to Need Service Sales Boost to Meet Margin Goal

Updated on

Siemens AG, Europe’s largest engineering company, needs to secure more service contracts in the fourth quarter to reach the full-year profitability goal for its industrial business, said a person familiar with the matter.

Currency effects and weak global growth have made it harder to reach the target, said the person, asking not to be identified as the matter is not public. The Munich-based company in May predicted to reach the lower end of the 10 percent to 11 percent profitability target range for the industrial business.

Chief Executive Officer Joe Kaeser, who is focusing Siemens on energy generation and distribution, last year spent $7.6 billion on acquiring oil and gas specialist Dresser-Rand Inc. to boost the company’s installed base of equipment and gain the associated lucrative service contracts. Deals to maintain and optimize installed hardware are usually more profitable than contracts simply to supply equipment.

Since the dollar-denominated Dresser-Rand deal was agreed in September, the euro has tumbled 14 percent against the dollar and oil has fallen 38 percent, placing the rationale of the takeover in question. The engineering company said in May it will cut another 4,500 jobs after second-quarter profit fell more than analysts estimated.

Siemens shares fell as much as 2.3 percent on Monday and were trading 1.3 percent lower at 89.39 euros as of 1:58 p.m. in Frankfurt. That extends the decline this year to 4.7 percent, valuing the company at about 79 billion euros ($87 billion).

Further job cuts may come in administrative and research roles at Dresser-Rand, which is already reducing its workforce by 8 percent, as Siemens integrates the Houston-based company, the person said today. The company still expects earnings per share to increase by at least 15 percent this year from 2014’s 6.37 euros, the person said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE