Siemens says profit rises 42%; raises 2016 guidance

German industrial giant Siemens AG posted a 42 percent jump in net profit for the first quarter of fiscal year 2016 and raised its guidance for the full fiscal year.

Net profit for the three months ended Dec. 31 totaled €1.53 billion ($1.65 billion), compared with €1.1 billion during the corresponding period a year earlier. Favorable currency effects helped to boost profitability, particularly in the health care division, the company said Monday.

The latest results beat analysts’ expectations. Analysts had forecast a first-quarter net profit of €1.08 billion, according to a recent poll conducted by The Wall Street Journal.

The company said it now expects basic earnings per share in a range of €6 to €6.40, up from previous guidance of €5.90 to €6.20.

“All divisions are in the black and have contributed to this strong kickoff,” Chief Executive Joe Kaeser said Tuesday.

First-quarter revenue rose 8 percent to €18.89 billion. New orders increased 27 percent to €22.8 billion, boosted by an €8 billion power-generation contract in Egypt.

Profit was driven in part by the health-care division, whose profit margin rose to 16.5 percent, compared with 14.5 percent a year earlier, boosted by strong earnings at the diagnostic-imaging unit. Siemens last year made the health-care business a separate legal entity, a move that many analysts say signals an eventual spinoff or sale of the business.

Analysts largely welcomed the results. “The strong order momentum should provide some revenue visibility for 2017,” analysts at J.P. Morgan wrote in a note. “Our concern remains that other companies are far more aggressive on additional cost cuts that could support their relative earnings growth in 2017.”

The company released quarterly figures Monday evening, a day earlier than planned. At the same time, it announced plans to acquire U.S.-based simulation software supplier CD-adapco in a stock-purchase agreement valued at $970 million.

CD-adapco will be integrated into Siemens’s profitable Digital Factory division, which produces industrial software and factory-automation gear. Mr. Kaeser said Tuesday that the deal was part of Siemens’s strategy to expand its electrification, automation and digitalization capabilities.

“CD-adapco further reinforces our leading role in industrial digitalization,” Mr. Kaeser said, referencing the German “Industrie 4.0” initiative, which seeks to match the Internet of Things with heavy industry.

Still, the Digital Factory unit has come under pressure in recent quarters because of its strong exposure to the slowing Chinese economy.

Digital Factory’s first-quarter profit margin fell to 16.9 percent from 18.8 percent a year earlier, partly because of “industrial deceleration” in China, Siemens said. However, Mr. Kaeser said that “strong orders from Europe” had helped compensate for lower Chinese demand.

The economic slowdown in China is one of a number of macroeconomic factors, including lower global oil prices, that have been holding back growth at Siemens.

The company’s Power and Gas division continued to be squeezed by weak oil and gas markets, with the profit margin dropping to 9.5 percent from 11.3 percent a year earlier.

However, Mr. Kaeser said that “strong orders from Europe” had helped compensate for lower Chinese demand.

“Power and Gas operates in a market environment that continues to be challenging and is marked by intense competition, as well as overcapacities and high price pressure,” Mr. Kaeser said.

Mr. Kaeser, who took over in summer 2013, moved to build up Siemens’s oil and gas operations, with a $7.6 billion acquisition of U.S. oil-equipment maker Dresser-Rand just as petroleum prices started to plunge in 2014. Costs related to the integration of Dresser-Rand also held back profitability at the division, Siemens said.

However, the quarterly order intake at the division was helped by the Egypt contract, the largest in Siemens’s history.

Last year, the company signed a deal to supply Egypt with three natural-gas-fired power plants and deliver as many as 12 wind farms to the country. But analysts and investors remain concerned over Siemens’s ability to execute the project amid political uncertainty in Egypt.

Mr. Kaeser’s remarks Tuesday came just ahead of the company’s annual shareholders meeting. Investors were expected to push Mr. Kaeser to show more operational profitability this year after two years of restructuring.

Source: MarketWatch

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