By Christopher Alessi
MUNICH--German engineering company Siemens AG on Tuesday said
inet profit declined nearly 25% in the first quarter, hurt in part
by economic challenges in Europe and the slide in global oil
prices.
Net profit for the fiscal quarter ended Dec. 31 was EUR1.08
billion ($1.21 billion), compared with EUR1.43 billion during the
same period last year. Profit from continuing operations was down
18% to EUR1.11 billion, falling short of analysts' expectations.
Analysts had forecast net profit from continuing operations of
EUR1.26 billion, according to a poll by The Wall Street
Journal.
Revenue jumped by 5% to EUR17.42 billion from EUR16.58 billion,
helped by a weaker euro. Analysts had forecast revenue of EUR17.16
billion.
Siemens also saw an 11% decline in new orders to EUR18.01
billion from EUR20.14 billion year-on-year, hurt by lower volume in
large orders in the company's Mobility, Wind Power and Renewables,
and Process Industries and Drives businesses.
Siemens's power and gas business came under particular pressure,
squeezed by lower margins in the large gas turbine and steam
businesses, the company said. Weakness in European power plant
markets and the low oil price also hurt profit growth in the
division, analysts said. The profit margin for oil and gas fell to
11.3%, compared with 18.2% during the same period last year.
Siemens hosts its annual shareholders meeting Tuesday, where its
power and gas business is expected to come under heavy 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.
Analysts at Morgan Stanley had forecast that the estimated EUR14
billion power and gas business would cause Siemens its biggest
headache when reporting first-quarter earnings. They cited two
primary concerns: the timing around the Dresser deal given the oil
price decline, and the new competition Siemens faces in its core
gas turbine business as a result of General Electric Co.'s planned
merger with France's Alstom.
The division also faces questions over a management reshuffle.
On Monday, Siemens announced that the CEO of its power and gas
division, Roland Fischer, would step down at the end of this month.
Management board member Lisa Davis, who is responsible for the
company's energy operations out of Houston, will serve as acting
division head, the company said.
Ms. Davis, an American who joined Siemens from Royal Dutch Shell
PLC last year, will also be responsible for managing the
integration of Dresser once the deal closes this summer.
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.
The acquisition is part of a larger effort by Mr. Kaeser to
streamline the company by shedding non-core businesses and focusing
it more on energy operations. Last month, Siemens closed a deal to
acquire Rolls Royce Holdings PLC's civilian energy operations for
$1.3 billion.
On the other hand, Siemens earlier this month closed the sale of
its hearing aid unit, a division of its lucrative healthcare
business, for EUR2.15 billion to private-equity firm EQT Partners
and Santo Holding.
Analysts have expected 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 healthcare business dropped to 14.5% in the first quarter,
compared with 17.6% last year.
Write to Christopher Alessi at christopher.alessi@wsj.com
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