Siemens Profit Beats Estimates on Infrastructure Demand
Siemens AG (SIE), Europe’s largest engineering company, reported fiscal first-quarter earnings that beat analyst estimates as profitability at the infrastructure unit more than doubled.
Income from continuing operations jumped 21 percent to 1.39 billion euros ($1.9 billion) in the three months through December, the Munich-based company said in a statement today. The average estimate of analysts surveyed by Bloomberg was 1.33 billion euros. The company also said today it will end its listing on the New York Stock Exchange to cut costs and reduce the complexity of its financial reporting.
Former finance chief Joe Kaeser became chief executive officer in August after predecessor Peter Loescher said the company wouldn’t meet a goal for 2014 profit representing 12 percent of sales, which was underpinned by a plan to shave 6.3 billion euros from costs by the end of the fiscal year. To match the profitability of ABB Ltd. and General Electric Co., he is trying to reduce charges for mismanaged projects.
“It’s a mixed set of results -- orders beat, but revenue missed,” said Simon Toennessen, a London-based Credit Suisse analyst who rates Siemens outperform. “Again there were higher-than-expected charges in wind transmissions, 67 million euros versus the 18 million-euro consensus.”
The stock gained 0.4 percent to 97.80 euros as of 4:49 a.m in Frankfurt trading, valuing the company at 87 billion euros. Since Kaeser’s appointment, the stock has gained more than 17 percent before today.
Siemens’ power transmission business posted a first-quarter loss of 84 million euros, partly because of “continuing project execution challenges,” the company said.
The wind transmission charges are related to offshore wind-farm grid connections in Germany and stem from revised estimates of required resources and personnel as well as delays, the company said. Profit was also hurt by a higher proportion of projects with “low or negligible profit margins,” Siemens said, adding that the division faces “continuing challenges in coming quarters.”
Excluding project charges, Siemens expects the transmissions unit to break even or post a “low single-digit” profit margin this year.
The new CEO has said Siemens will select projects more carefully and the company delivered the first four trains of a 16-strong order from German rail operator Deutsche Bahn AG last month. Charges for delays to the project have trimmed hundreds of millions of euros from profit since 2011.
Profit at the infrastructure and cities sector, last year the least profitable of Siemens’ four sectors, jumped to 330 million euros from 141 million euros a year earlier, with revenue climbing 5 percent to 4.4 billion euros. Profitability also increased at the energy and health-care sectors, while declining at the industry sector.
“We delivered a sound quarter to start our fiscal year. As expected, market conditions were not in our favor,” Kaeser, for whom this was the first full quarter at the helm, told journalists in Munich. “We continue to focus on our productivity program.”
Total sales dropped 3.3 percent to 17.3 billion euros in the quarter, while orders gained 9 percent to 20.8 billion euros.
Kaeser said today he expects Siemens’ markets to remain challenging in fiscal 2014 as the company’s short-cycle businesses aren’t anticipating a recovery until late in the fiscal year.
The 56-year-old native of Bavaria is also working through Siemens’s portfolio before planned strategy update in May.
“Our company is not a restructuring case,” Kaeser told investors in Munich today. “Digitization is becoming the determining factor in shaping the future almost everywhere. That is what we will focus on in our strategy and how we will set up our company’s structure.”
The company has already earmarked some businesses for disposal. The company sealed the 640 million-euro sale of parts of its water technologies business to New York-based AEA Investors last year and is also seeking a buyer for its baggage and package handling technology business.
The company is also considering selling its VAI metals technologies unit, three people with knowledge of the matter said in December.
Siemens is buying back as much as 4 billion euros of shares as Kaeser seeks to engender investor confidence. The company today reiterated a profit margin goal of about 10 percent this year, compared with the 7.6 percent in 2013.
After the delisting from the New York Stock Exchange, Siemens will continue to be listed in London and Zurich in addition to Frankfurt.
“Our commitment for the U.S. and the importance of this market remains unchanged,” Chief Financial Officer Ralf Thomas said of the NYSE delisting in a separate statement today. “We expect the delisting to result in a significant increase of efficiency and a reduction of complexity in our financial reporting.”
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