Photographer: Timothy Fadek/Bloomberg

Siemens's Outlook For Growth Bolstered After Profit Beats

  • CEO Kaeser sticks to 2016 targets With Egypt, U.K. orders
  • Siemens raises goal to cut costs as jobs shed in Germany

Siemens AG Chief Executive Officer Joe Kaeser’s surprise move in January to raise the full-year outlook in the midst of a commodities slump is now looking prescient after second-quarter earnings beat estimates.

Europe’s biggest engineering company on Wednesday reported a 28 percent jump in profit and raised a goal to cut costs as contracts for power plants in Egypt and wind turbines in the U.K. helped bolster its order books. The shares rose as much as 2.2 percent.

“The numbers are very strong,” said Michael Busse, an analyst at Wolfgang Steubing AG, who recommends buying shares. Siemens’s full-year profit forecast is too low and may even be raised in the next quarterly report in August, he said.

At the start of the year, Kaeser unexpectedly lifted financial goals in a show of confidence that the German firm could ride out a slowdown in China and drop in oil prices. The chief executive is shifting the focus of Siemens to energy generation and distribution, cutting more than 15,500 jobs in the process after several years of stagnating earnings. He has also accelerated a cost-savings plan, saying the company may achieve as much as 950 million euros ($1.1 billion) this year.

Orders Rise

Profit from so-called industrial operations rose 28 percent to 2.12 billion euros in the three months through March, the Munich-based company said in a statement. The average estimate in a Bloomberg survey was for 1.92 billion euros. The profit margin was 10.9 percent, at the higher end of the 10 percent to 11 percent range forecast for the full year.

Orders gained 7 percent to 22.3 billion euros. The quarter was marked by two major contract wins, one for a power plant project in Egypt and another for an offshore wind farm off the coast of England. Fewer orders came in for the oil and gas and large drives business because of weak demand in commodity-related industries.

The shares rose 0.6 percent to 90.46 euros at 11:44 a.m. in Frankfurt. The company has a market value of 77 billion euros.

“Profitability in the industrial business was gratifying in the second quarter,” Kaeser said in a video posted on its website. “Despite ongoing challenges in the market environment, we will continue to focus rigorously on profitable growth.”

Self-help

Quarterly sales rose 5 percent to 19 billion euros, narrowly missing a 19.3 billion-euro Bloomberg estimate. Basic earnings per share dropped to 1.78 euros compared to 4.70 euros in the year-earlier period when the company booked divestment gains for its hearing aid and home appliances businesses.

Full-year earnings per share will be between 6 euros and 6.40 euros, the company reiterated Wednesday. In setting the target in January, Kaeser said the company can do a lot internally to reach the goal. Revenue growth is forecast to be “moderate,” net of effects from currency translation.

Siemens did make one change in lowering its expectations for its high-margin, short-cycle businesses, or factory automation, saying on Wednesday it no longer sees demand picking up materially in the second half. The company is sticking to its full-year forecasts nonetheless, it said.

“The transformation of the conglomerate continues,” DZ Bank analyst Alexander Hauenstein said in a note. The quarterly earnings were better-than-expected, and the backlog of power and gas orders “looks promising.”

Job Cuts

Ending or easing of sanctions in Iran allowed the company’s power and gas division to report revenue and profit from related operations, which added 0.6 percentage points to the industrial business profit margin, Siemens said.

Since Kaeser took over in August 2013, the executive has spent almost $9 billion on buying oil and gas equipment specialist Dresser-Rand Inc. and Rolls-Royce Holdings Plc.’s energy unit. Following the steep decline in crude oil prices, energy companies and their equipment suppliers have been hit by a decline in new projects. Siemens unveiled a plan in March to cut about 2,500 mostly German jobs, blaming falling demand in energy, mining and metals markets.

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