Schneider CFO Says Challenging Economy May Last Into Next Year

Schneider Electric SE’s chief financial officer said the maker of electrical equipment may continue to face a difficult economic environment into next year as European growth stagnates and Chinese construction slows.

“We’re still working in a challenging environment with uncertainties, a lack of visibility and deflationary pressures,” CFO Emmanuel Babeau said today in a phone interview as the French company reported 7 percent growth in third-quarter revenue, mainly driven by acquisitions. “I think the situation will continue in the fourth quarter, and maybe beyond.”

Schneider is reducing costs to adapt to a construction slump and government austerity measures. While the company has faced weaker demand from utilities in western Europe, organic sales grew 0.2 percent in the region, the first gain in three years. Schneider is shifting manufacturing and support costs to faster-growing areas to reduce its exposure to appreciation of the euro, which has curbed profitability in recent quarters.

Revenue climbed to 6.29 billion euros ($8 billion) in the quarter, up 1.6 percent on an organic basis, Schneider said in a statement today. U.S. business accelerated on investment in residential construction, oil and gas, and data centers, as well as increased demand from manufacturers, while Chinese work showed “low single-digit” percentage growth, it said.

“In China, one of the questions for the months to come is the size of the slowdown, especially in construction,” Babeau said. “A lot of infrastructure projects are still being delayed, mostly in Western Europe, which remains difficult.”

Invensys Integration

Schneider is focusing on organic growth and integrating Invensys, a U.K. maker of software and control systems used in the chemical, oil and gas, and mining industries, which it bought in January. The software business “continues to perform well” and “targeted cost synergies” for 2014 are confirmed, the company said. Acquisitions added 397 million euros to third-quarter sales.

Schneider also reiterated its prediction for low single-digit organic sales growth this year, and a 0.4 percentage point to 0.8 percentage point advance in the margin for adjusted earnings before interest, taxes and amortization, excluding currency effects, from a 2013 pro forma level that includes Invensys.

Schneider shares rose 2.9 percent to 60.59 euros as of 10:14 in Paris, paring the decline this year to 4.4 percent. The company, based in Rueil-Malmaison near the French capital, is valued at 35 billion euros.

Currency fluctuations trimmed revenue by 81 million euros in the period as the Russian ruble, the Chinese yuan, the dollar and the Indonesian rupiah fell against the euro.

Given the recent depreciation of the euro against the dollar, Schneider said it now expects a “neutral to marginally positive impact” on second-half revenue and adjusted earnings before interest, tax and amortization. The negative currency effect is still estimated at 0.4 point for 2014, it said.

“Infrastructure revenues are down organically, yet the business shows signs of improvement, with orders up high single digit, driven by long-cycle projects,” Chief Executive Officer Jean-Pascal Tricoire said in a statement.

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