Industrials

James Boxell is an editor with Bloomberg Gadfly. He worked previously at the Financial Times in a variety of writing and editing jobs. Before becoming a journalist, he helped launch a legal technology startup.

Siemens CEO Joe Kaeser has a mantra about financial results: "Make the numbers, no excuses, no surprises." But a look at the German manufacturer's earnings per share targets over the past couple of years suggests he should add: "Be consistent."

On Thursday, Kaeser pleased investors by hiking the dividend and saying he would buy back as much as 3 billion euros ($3.2 billion) of shares. He also predicted earnings per share would rise at least 14 percent in 2016. That's where the issue about consistency kicks in.

For 2015, Siemens had an EPS growth target of 15 percent, which it beat easily because of one-time gains from disposals. Without those sales, the company said EPS would have been 5.18 euros in 2015 -- less than the 8.84 euros reported. If it hadn't included the disposals, the company wouldn't have been able to set (and beat) such a punchy target.

From the Siemens point of view, this is fair enough because it was always open about the fact that hitting the target would rely on the big one-off proceeds from disposals. It also says it was comparing apples with apples because the EPS figure used from the previous year also included extraordinary items. The only point of contention is that there was far less income from asset sales in 2014. That created a flattering comparison.

Siemens's earnings per share

That in itself wouldn't be a problem if Siemens stuck with the same approach every year. But for next year, it's decided to change up, in a way that again helps it to set an impressive-looking EPS target. This time, Kaeser has opted to strip out this year's gain from disposals when setting his 2016 forecast and use the adjusted EPS figure instead.

As a result that reported 8.84 euros mentioned earlier magically shrinks to the smaller amount of 5.18 euros. This means that hitting the 2016 target range of 5.90 euros to 6.20 euros would represent a 14 percent to 20 percent gain in EPS. If Siemens had stayed consistent in its forecasting, it would be talking about a drop in EPS (unless it sold another chunk of assets.)

Siemens argues that it's being transparent about what it's up to and that it's within its gift to set yearly EPS targets in any way it sees fit. It would be daft to have negative EPS targets, it says. 

On the Upswing
Source: Bloomberg

Investors are also relatively sanguine about this kind of stuff, helped by a recent improvement in the Siemens share price. But for a company that says it intends to grow faster than competitors such as General Electric, it seems only fair to have a steady basis for comparison. Kaeser shouldn't have it both ways. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
James Boxell in London at jboxell@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net