Siemens Profit Drops on Delayed Train Orders, Solar UnitAlex Webb and Richard Weiss
Siemens AG’s first-quarter profit declined on charges for delays in high-speed trains orders and a failed solar power project, adding to more than 1 billion euros ($1.3 billion) in predicted restructuring costs this year.
Net income from continuing operations at Europe’s largest engineering company slipped 1.4 percent to 1.3 billion euros in the three months through December, Munich-based Siemens said in a statement today. Costs relating to train delivery delays and energy projects topped 300 million euros in the fiscal first quarter.
Chief Executive Officer Peter Loescher needs to defend his strategic skills today as he faces thousands of investors at the annual shareholder meeting. The CEO, on his second five-year term, has come under pressure after most deals that he supervised soured, and a push into more environmentally friendly energy generation led to spiraling costs. Profitability last year dropped back to the levels when Loescher started in 2007, prompting a new program in November to cut costs.
“The unfortunate thing we’ve seen with Siemens over the past few years is that there’s a continued line of charges,” said James Stettler, a London-based Canaccord Genuity analyst who rates Siemens hold. “Investors tend to be a bit skeptical with Siemens, because you never know the underlying earnings as there’s such a volatility.”
Siemens booked 116 million euros in charges for delays to a high-speed trains order, a 115 million-euro impairment on a Spanish solar power project, 46 million euros related to stricter trade sanctions on Iran and 28 million euros for offshore power projects in Germany’s North Sea.
These charges will be added to more than 1 billion euros in restructuring expenses for Siemens to be booked this year. In total, the effort will cost 1.5 billion euros over two years, Siemens said.
The stock ended trading in Frankfurt little changed today at 83.68 euros, valuing the company at 73.7 billion euros. Siemens rose 11 percent in 2012, while Germany’s benchmark DAX index gained 29 percent. U.S. competitor General Electric Co. increased 17 percent last year, while Swiss rival ABB Ltd. added 6.1 percent.
Siemens’s order intake declined 3.3 percent to 19.1 billion euros in the fiscal first quarter, while revenue gained 1.5 percent to 18.1 billion euros. Loescher said today the European economy won’t support Siemens’ business this year.
“The mood in Europe calmed down in the second half of 2012, but economic output in the euro zone will most likely decline once again,” the CEO said at a press conference today. “The economic forecasts for the United States are still very cautious. However, we believe that the economic recovery there could pick up speed.”
The euro-area economy is hobbled by a recession, and unemployment in the region reached a record 11.8 percent in November. The currency bloc fell into its second recession in four years in the third quarter and the European Central Bank expects the economy to shrink 0.3 percent this year. The euro region absorbs about 40 percent of German exports.
Siemens said it will continue to slash costs to reach its target for full-year profit of between 4.5 billion euros and 5 billion euros on revenue below the 78.3 billion euros in 2012.
Siemens’ health-care operations are in the second year of an efficiency push, mainly in the diagnostics operations. Health-care earnings were also lifted by orders of more profitable products, the company said.
The solar energy unit was put up for sale in October, two years after its founding through acquisitions including Archimede Solar Energy and Solel Solar Systems. Deteriorating prices for photovoltaic modules have made concentrated solar power less attractive, and the activities had been unprofitable since Siemens bundled the operations into a separate unit in 2011. The unit lost 150 million euros in the quarter.
Siemens’ energy units will contribute savings of 3.2 billion euros, improving procurement and project execution toward a goal for reducing costs by 6 billion euros by 2014, Siemens said in December. The plan also includes the disposal of parts of a water business and units offering parcel automation, airport logistics and airfreight.
The company has “noticeable interest” in these units from prospective buyers, Chief Financial Officer Joe Kaeser said at a press conference.
First-quarter profit across the company’s four core business sectors increased 4.4 percent to 1.7 billion euros, driven by a 12 percent increase at the energy unit to 567 million euros and a 38 percent increase in the health-care business to 503 million euros. Profit from the industry unit slipped 10 percent to 500 million euros, while it fell 36 percent to 128 million euros in the infrastructure and cities sector.
“There was good profitability in the healthcare and energy sectors, but on the other hand, the short-cycle segments in the industry sector were relatively weak both in terms of order intake and profitability,” Frankfurt-based Commerzbank analyst Ingo-Martin Schachel, who has a hold rating on Siemens, said by phone. “That’s clearly negative.”
Order intake in industrial automation declined 12 percent in the quarter, while it fell 2 percent in drives technology. Demand from customers in the tool making and automotive industries from Germany and northern Italy may slow in the coming quarters, CFO Kaeser said.
At 13.9 percent, profitability at industry automation remained the second-highest among Siemens’ reporting divisions, trailing fossil-power generation at 19.6 percent. The company does not report financials for its imaging business, which makes medical scanners.
Siemens is one of the first major industrial companies to report earnings for the final three months of 2012, offering an insight into global demand with its products, which span trains, power turbines, medical scanners and factory automation gear.
General Electric, based in Fairfield, Connecticut, last week reported quarterly results that also topped analysts’ estimates. The company’s emerging-market expansion fueled the aviation and health-care divisions, which drove industrial performance and helped build a record $210 billion order backlog.
Siemens’ shareholders today backed plans to spin off the Osram lighting unit into a standalone company and approved a dividend payout of 3 euros per share. Investors are receiving one Osram share for every 10 Siemens shares they own. An initial listing in Frankfurt and Munich would happen in April at the earliest, Siemens said in a statement.
Osram posted a profit of 79 million euros in the quarter, compared with 111 million last year. The parent company expects 200 million euros in costs related to the spinoff.