By Christopher Alessi
MUNICH-- Siemens AG has stuck to a forecast for improved
earnings in its current fiscal year despite a near 25% fall in
first-quarter net profit, held back by Europe's sluggish economy
and lower oil prices.
Net profit in the three months to Dec. 31 fell to EUR1.08
billion ($1.21 billion) from EUR1.43 billion in the same period
last year, Siemens said on Tuesday. Revenue rose 5% to EUR17.42
billion, helped by the euro's weakness against major
currencies.
Siemens reiterated that it expects to notch up 15% growth in
earnings per share in the year to end-September on unchanged
revenue.
Still, an 11% decline in new orders to EUR18.01 billion
underscored the pressure Siemens is facing as customers placed
fewer large orders at its mobility, wind power and renewables
business as well as its process industries and drives unit.
Profitability at Siemens's power and gas business, its biggest
by sales, came under particular pressure, hit by lower margins in
the large gas turbine and steam businesses, the company said.
Cutbacks in investment by European utilities and lower energy
prices have squeezed profitability in the sector. The division's
profit margin shrank to 11.3% from 18.2% in the same period last
year, Siemens said.
"No other business in the company has such a pronounced need for
action, " said Chief Executive Joe Kaeser of the power and gas
division. "This is partly because we didn't adequately recognize
the signs of the times, such as rising price pressure and over
capacities," he added.
Siemens hosts its annual shareholders meeting Tuesday, where its
power and gas business is expected to come under scrutiny.
Investors are likely to voice concerns over the high price Chief
Executive Joe Kaeser agreed to pay in September to acquire U.S.
oil-equipment maker Dresser Rand Group. Inc.
Those worries have been amplified in recent weeks as oil prices
have plummeted to below $50 a barrel.
Investors have largely supported the Dresser acquisition from a
strategic perspective, allowing Siemens to take advantage of the
U.S. shale-gas boom and to leverage a new product portfolio in the
oil sector, but have criticized the high price and fretted over the
inopportune timing. The deal, at $83 a share, values Dresser at
roughly 58 times the past year's earnings. Rival U.S. oil-services
companies FMC Technologies Inc. and Dril-Quip Inc. trade at less
than 16 times earnings.
Mr. Kaeser, who said the low oil price is "a result of
oversupply" rather than reduced demand, reiterated that the
acquisition of Dresser would allow Siemens to achieve synergies 30%
higher than forecast when the deal was first announced. In
September, Siemens said it expected to achieve EUR150 million in
annual synergies by 2019.
The deal is part of a larger effort by Mr. Kaeser to streamline
the company by shedding noncore businesses and focusing more on
energy operations. Last month, Siemens closed a deal to acquire
Rolls Royce Holdings PLC's civilian energy operations for $1.3
billion.
Siemens earlier this month closed the sale of its hearing aid
unit, a division of its lucrative health-care business, for EUR2.15
billion to private-equity firm EQT Partners and Santo Holding.
Analysts have expected that Mr. Kaeser could dispose of the rest
of Siemens Healthcare, which he separated operationally from the
rest of the company last year, through a spin off to shareholders,
an initial public offering or an outright sale. The profit margin
in the health care business dropped to 14.5% in the first quarter,
compared with 17.6% last year.
One of the brighter parts of Siemens's first-quarter performance
was its digital factory division, helped by strong revenue growth
in its motion-control, factory-automation and industry-software
businesses. The improvement reflects the company's efforts to build
smart factories, part of a public-private German digitization
initiative known as "Industrie 4.0."
Write to Christopher Alessi at christopher.alessi@wsj.com
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