Siemens Profit Hurt by Low Oil Price

By Christopher Alessi 

        MUNICH--German industrial conglomerate Siemens AG on Thursday reported a slight decline in third-quarter net profit on slow growth in its power and gas division and a weak global economy.
        Net profit for the period ended June 30 was EUR1.36 billion ($1.49 billion), compared with EUR1.37 billion during the same period last year. Analysts had forecast net profit of EUR1.03 billion, according to a recent poll conducted by The Wall Street Journal.
        Shares in the company were up 3.0% midmorning.
        Revenue rose 8% to EUR18.84 billion on strong growth in the company's health-care, energy-management, digital factory and building technologies units. New orders increased 4%, helped by a EUR1.6 billion long-term train maintenance order in Russia at Siemens Mobility.
        Siemens reported a third-quarter industrial profit margin of 9.5%, down from 10.1% last year, as profitability in the health-care and energy-management divisions slightly offset profit declines at the power and gas business. Analysts had expected a profit margin of 9.2%, according to the Journal poll.
        Profit at the power and gas unit plummeted 47% to EUR289 million, partly hurt by EUR106 million in charges connected with one project's higher material costs and customer delays. Profitability was also hurt by lower margins in the gas-turbine business and higher selling and research-and-development expenses, Siemens said. The division has faced macroeconomic headwinds that have "increased price pressure and over capacities," the company added.
        Since taking the helm two years ago, Siemens Chief Executive Joe Kaeser has refocused the company on oil and gas, a move that has been complicated by the plunge in global oil prices over the past year.
        Siemens last year acquired Rolls Royce's energy operations for $1.3 billion, and, at the end of June, closed its purchase of U.S. oil-equipment maker Dresser-Rand Group Inc. for $7.8 billion. The latter deal has faced heavy criticism from some investors who feel the acquisition was too expensive and poorly timed due to the plunge in oil prices.
        Mr. Kaeser said the integration of Dresser-Rand was under way and initial customer feedback was "very encouraging," even as he acknowledged that the "depressed oil price is a concern" in the short term.
        Weakness at the power and gas division was partly countered by strong order growth, at 13%, at the energy-management business, helped by large contracts in the Middle East.
        The company's health-care division also recorded strong order and revenue growth, at 15% and 16%, respectively, led by the imaging and therapy systems businesses. Health-care profitability rose 23%, to EUR549 million, boosted by positive currency effects.
        Mr. Kaeser last year operationally and legally separated Siemens's health-care division, which has consistently been one of the group's most profitable, with a 16.9% profit margin this quarter. Analysts have long speculated that Mr. Kaeser could divest the business next year--which requires heavy investment to stay competitive globally--either through an initial public offering, a spinoff to shareholders or an outright sale.
        The digital-factory division, which produces hardware and software for high-tech manufacturing, also provided solid growth, with orders and revenues up 14% and 10%, respectively, helped by strong growth in the automotive and machine industries in the U.S., Germany and Italy. However, volumes in China were down due to the slowing economic environment there, Siemens said.
        Siemens reiterated its guidance for fiscal 2015, saying it still expects to achieve an industrial profit margin between 10% and 11%, though Mr. Kaeser reiterated that Siemens is forecasting the low range of that bracket. The company also expects basic earnings per share for fiscal 2015 to increase at least 15%, from EUR6.37 in 2014, while revenue will likely remain flat year-over-year.
        At the same time, Siemens, which is in the midst of a restructuring program that includes roughly 13,100 job cuts, could see restructuring costs of up to EUR1 billion for fiscal 2015, the company has said.
        Write to Christopher Alessi at christopher.alessi@wsj.com
        (END) Dow Jones Newswires

        July 30, 2015 05:08 ET (09:08 GMT)

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