Siemens Raises Outlook as Renewables, Digital Provide Boost

(Bloomberg) -- Siemens AG raised its full-year outlook after renewable energy projects and digital services led to better-than-expected first-quarter profit even as Europe’s biggest engineering company said orders are starting to weaken.

The German company improved expectations for its industrial business profit margin and for earnings per share, according to a statement. The shares got their biggest boost in more than two months.

“They were excellent numbers,” said Jefferies analyst Peter Reilly. “It’s still a quite difficult industrial environment so it’s a very solid performance.”

The improved financial outlook comes as Siemens refocuses its sprawling portfolio by planning to list its health-care unit after acquiring Spanish wind energy company Gamesa Corp Tecnologia SA. The German maker of scanners, trains and factory equipment has also bought U.S. software companies in a bid to keep pace with competitors like General Electric Co. Siemens on Wednesday nominated Jim Hagemann Snabe, a veteran of software maker SAP, to replace Gerhard Cromme as chairman starting next January.

Orders Decline

Siemens’s improved financial outlook contrasts with the more subdued tone of executives speaking about future orders, which were down 14 percent compared with the year earlier. The trend began in the fourth quarter and continued into the first, said Chief Executive Officer Joe Kaeser at a press conference Wednesday.

“We’re also seeing a highly volatile and cautious market reflecting current uncertainties in the political environment,” said Lisa Davis, managing board member responsible for energy. “This caution is damping investor confidence and resulting in projects being largely deferred.”

The company is having to fight for every order amid “intense” price pressure, according to Chief Financial Officer Ralf Thomas.

Siemens needs to pay attention to orders in 2018 and 2019, especially at its power and gas division, Jefferies analyst Reilly said.

“It’s particularly an issue for power and gas. They’ve had two soft quarters on order intake but they’ve got a multi-year backlog,” he said. “There is some concern for 2018 and beyond because the Egyptian contract is going to be finished this year.”

Brighter Outlook

Siemens now expects the profit margin for the industrial business to be in the range of 11 percent to 12 percent this year, compared with a previous outlook of 10.5 percent to 11.5 percent, according to the statement. The outlook for its basic earnings per share is in the range of 7.20 euros to 7.70 euros, higher than the previous range of 6.80 euros to 7.20 euros.

First-quarter profit from so-called industrial operations rose 26 percent to 2.51 billion euros ($2.72 billion), beating an average of 2.08 billion euros of analysts surveyed by Bloomberg. Net income rose 25 percent to 1.94 billion euros.

Shares rose 4.7 percent, the most since Nov. 10, to 121.70 euros at 11:08 in Frankfurt, valuing the company at 103 billion euros.

Profit at Siemens’s wind power and renewable energy business more than doubled, with sales rising for offshore installations in Europe. Siemens so-called Digital Factory earnings jumped by 60% partly on an electric car venture. The health-care unit reported flat revenue and a 15 percent increase in profit against the backdrop of “clear growth” in Asia including China and Australia.

The train-making mobility division was the worst performer among Siemens’s businesses, with a 15 percent decline in profit. Power and gas profit rose 31 percent due to a large order in Egypt even as markets in Europe, the Middle East and the Americas were in “substantial decline,” the company said.

Total revenue for the quarter was 19.1 billion euros, missing the average estimate of analysts surveyed by Bloomberg of 19.6 billion euros.

--With assistance from Hanna Hoikkala To contact the reporters on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net, Mariajose Vera in Munich at mvera1@bloomberg.net. To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, John Bowker