Schneider Cuts 2013 Targets as Euro Strength Hurts SalesFrancois de Beaupuy
Schneider Electric SA, the world’s biggest maker of low- and medium-voltage equipment, cut its 2013 profitability and revenue forecasts because of the euro’s rally on foreign-exchange markets.
The decline of currencies in Asia-Pacific and other markets such as Turkey, Argentina and South Africa will crimp Schneider’s margin, based on adjusted earnings before interest, taxes and amortization, by 0.3 to 0.5 percentage points, the French company said in a statement today. The stock dropped as much as 4.4 percent, the biggest decline since July.
Schneider joins companies such as Unilever, the British-Dutch maker of Magnum ice cream, and Paris-based water company Suez Environnement in saying that the euro exchange rate is denting earnings. The French company, which is already slashing costs to adapt to a construction slump and government austerity measures in Europe, said it will seek to compensate the negative currency impact next year by raising prices and moving expenses into emerging markets.
“We’re working to raise prices, though it doesn’t happen in a day, and you don’t want to overreact or underreact,” Schneider Chief Financial Officer Emmanuel Babeau said in a phone interview today. “We’ll also continue to place more of our costs in countries with weak or more volatile currencies to aim for a natural hedge, even it will never be perfect.”
The company previously forecast that the 2013 Ebita margin would be “stable to slightly up.” It now targets Ebita to only be “stable to slightly up” excluding currency swings and the impact from acquisitions.
Before today, Europe’s common currency had climbed 6.7 percent against a basket of its nine major peers this year, more than the others, as the euro region emerged from a record-long recession, Bloomberg Correlation-Weighted Currency Indexes show.
“The euro zone is the only area which doesn’t seem to want to use its currency as a weapon for economic competitiveness, unlike the U.S., Japan and other countries,” Babeau said. “At $1.38, the euro seems overvalued.”
Schneider shares were down 4.1 percent at 60.65 euros at 9:05 a.m. in Paris, paring the stock’s gain this year to 11 percent, and giving the company a market value of 34 billion euros ($47 billion).
The company will continue to add more manufacturing and support functions in faster-growing markets such as India, Russia and Brazil, the CFO said.
Schneider, based in Rueil-Malmaison near Paris, also said today that currency swings will crimp 2013 revenue by between 800 million euros and 900 million euros. At the start of the year, it forecast a negative impact of 600 million euros.
The company now targets a “stable to limited organic revenue growth” in 2013. Its previous forecast was for a “low-single digit organic growth in sales.”
Third-quarter revenue declined 3.2 percent to 5.9 billion euros, Schneider said. Analysts polled by Bloomberg projected 6.15 billion euros, according to the average of four forecasts. Excluding acquisitions and exchange rate fluctuations, sales rose 0.7 percent.
Foreign exchange fluctuations trimmed third-quarter revenue by 352 million euros as the European currency strengthened against the dollar, the yen, the Indian rupee and the Brazilian real and other currencies, Schneider said. Net acquisitions added 114 million euros to sales, boosted by the purchase of the 50 percent that Schneider didn’t already own in Russia’s Electroshield-TM Samara.
Schneider also said today it may complete the purchase of Invensys Plc in the fourth quarter of 2013 or in the first quarter next year. It agreed in July to buy the U.K. company for an enterprise value of 2.4 billion pounds ($3.9 billion) to add software and control systems used in the chemical, oil and gas, and mining industries, to its plant automation products.
“In the future, our priority will be integration of acquisitions, optimization of our portfolio and our footprint, and continued effort on operational efficiency to maximize the return on recent investments,” said Chief Executive Officer Jean-Pascal Tricoire.