July 22, 2012 / 2:38 PM / in 5 years

Siemens industry units wobble as Europe falters

FRANKFURT (Reuters) - Europe’s biggest engineering conglomerate Siemens (SIEGn.DE) looks set to report a decline in third-quarter new orders of its flagship products as manufacturing demand across the region continues to wrestle with the debt crisis.

Employees of German industrial group Siemens are reflected in the company logo in Berlin, November 26, 2009. REUTERS/Tobias Schwarz

The company, considered a bellwether for the euro zone economy, said in June it would be more difficult to meet its 2012 target for net income from continuing operations, which it had slashed to 5.2-5.4 billion euros in April from the previous target of 6 billion euros ($7.30 billion).

Analysts said they did not expect another downward revision of the guidance. Investors will be focusing on the third quarter to June orders as well as profit margins at its Industry Sector, which tends to give the earliest indications of economic swing.

“It’s the segment where the euro zone debt crisis would have had an immediate impact, and the market will be watching the extent of the impact,” said Commerzbank analyst Ingo-Martin Schachel.

The unit is one of four core businesses that include energy, healthcare and infrastructure. It accounts for a third of profit at Siemens, which makes nearly everything from fast trains to high voltage transmission lines to light bulbs and hearing aids.

Despite the unit’s shrinking demand, operating profit from all four core segments combined is expected by analysts to be higher in its third quarter, thanks to solid gains in fossil power generation as well as oil and gas units.

ThomsonReuters’ Starmine, which rates analysts based on their track record, has predicted quarterly net income will be 0.5 percent higher than the mean estimate of 1.388 billion euros.

Analysts said net income should be higher because one-off charges would be lower than last year‘s, which included 682 million euros for the Areva arbitration payment and another 381 million writedown for the particle therapy business.

Amidst the slow growth environment, analysts expect Siemens will put more stress on productivity gains than increasing its capital spending but do not expect cost cutting measures.

In 2008, before the onset of the financial crisis in the autumn that year, Siemens announced measures to slash its costs by 1.2 billion euros over a three-year period.

“We expect no further profit warning in Q3, but the undertone will become more cautious,” said analyst Karsten Oblinger of DZ Bank.

U.S. rival General Electric (GE.N), which competes with Siemens’ gas and steam turbines, wind power and MRI scans, on Friday reported a lower-than-expected rise in revenues because of weakness in Europe, though earnings beat forecasts on solid U.S. demand.

Reporting By Marilyn Gerlach; Editing by Mike Nesbit

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