Siemens says markets tough as profit misses view

FRANKFURT Thu Jul 28, 2011 6:35am EDT

A shareholder arrives for Siemens annual shareholders meeting in Munich January 25, 2011. REUTERS/Michaela Rehle

A shareholder arrives for Siemens annual shareholders meeting in Munich January 25, 2011.

Credit: Reuters/Michaela Rehle

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FRANKFURT (Reuters) - Siemens AG (SIEGn.DE), Europe's largest engineering group, cautioned that global economic risks were increasing as its healthcare unit dragged quarterly results below expectations.

Fiscal third-quarter net profit from continuing operations fell 47 percent to 763 million euros ($1.1 billion), lower than a consensus of about 1 billion euros in a Reuters poll, and while the group brushed off concerns that emerging markets might be cooling, it acknowledged developed countries were a worry.

"In terms of macroeconomic conditions, I think we are seeing a leveling off of growth momentum in the United States and Europe," Chief Executive Peter Loescher told Reuters Insider TV in an interview, adding the healthcare market was difficult.

Cash-strapped governments across Europe are pushing ahead with a drive to lower costs, while U.S. President Barack Obama is stepping up his drive to get healthcare spending under control in an effort to curb his country's bloated budget.

"The danger in the short term for the company lies in what will happen if growth in the United States remains subdued for a longer than expected period," said Markus Huber, head of sales and trading at ETX Capital.

"Another danger lies in the risk of the crisis in Europe spreading, which could lead to weaker growth here and also the risk of China growth slowing down more than expected."

The results suffered from a charge related to Siemens' exit from nuclear joint venture Areva NP and one from a halted particle therapy project it had with Rhoen Klinikum (RHKG.DE).

But the company, whose products range from hearing aids and light bulbs to fast trains and power plants, affirmed its full fiscal-year profit outlook on Thursday, banking on robust demand from factories in emerging markets.

Shares of Siemens fell 1.4 percent to 89.92 euros by 1023 GMT, slightly underperforming the STOXX Europe 600 Industrial Goods & Services index .SXNP, which was down 1.2 percent.

STEADY OUTLOOK

Siemens aims to overhaul its lumbering conglomerate structure by offloading non-core assets such as IT unit SIS and lighting firm Osram, while also adding a fourth business sector, infrastructure, to the existing ones of industry, energy and healthcare.

A weaker market environment has hampered its efforts, though. Its search for an investor for Nokia Siemens Networks, the world's second-biggest maker of wireless-networking gear, have stalled, and there are growing doubts it will be able to float Osram, also a No. 2 in its industry, later this year.

"We will see how markets develop in the autumn, both capital markets and ... microeconomic conditions of our business," Chief Financial Officer Joe Kaeser said, leaving the door open for a possible delay in the company's plans for Osram.

On the other hand, Loescher said he expects that there may be some opportunities for Siemens to make bolt-on acquisitions in the future as the weak market drives down purchase prices.

Asked whether the healthcare division's weak results could put it on the sell-off list, CEO Loescher said the underlying business was good, with continued demand for equipment such as MRI scanners or radiation and respiratory machines.

The division, which last year generated about 17 percent of group revenue, competes with companies such as Philips (PHG.AS) and General Electric's (GE.N) GE Healthcare.

Philips this month flagged a grim outlook after writedowns caused a surprise quarterly loss while GE tore through forecasts, boosted by demand outside the United States for heavy equipment including jet engines.

Rising commodity costs squeezed margins at Swiss engineer ABB (ABBN.VX), which said last week it had not been able to raise prices fast enough. France's Schneider Electric (SCHN.PA) is due to report results on Friday.

Siemens expects to post net profit from continuing operations to at least 7.5 billion euros in the fiscal year through the end of September.

(Additional reporting by Josie Cox; Writing by Maria Sheahan and Thomas Atkins; Editing by David Holmes and Sitaraman Shankar)

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