UPDATE 4-Materials costs put squeeze on Schneider margins

Fri Jul 29, 2011 6:58am EDT

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* Shares trim initial losses, down 2.5 pct

* H1 revs up 10.2 pct on organic basis

* Raw material cost impact much higher than forecasts

* Full-year EBITA margin seen at lower end of range

(Adds detail on raw material prices, updates shares)

By Christian Plumb and Matthias Blamont

PARIS, July 29 (Reuters) - Rising raw materials costs hit French power specialist Schneider Electric's first-half results harder than expected, putting pressure on its margin forecast for the year.

Coming a day after its domestic rival Legrand said it had been able to protect its margins with price increases, Schneider's news prompted a sharp drop in its shares. After being briefly halted limit-down at the start of trade, the stock was down 2.5 percent at 0927 GMT.

"Schneider didn't manage to offset raw material prices effects like Legrand did," CM-CIC analysts, which have a hold rating on the stock, wrote in a research note.

Schneider, which designs sensors, appliances and energy switchboards, uses materials such as copper , silver and plastic, the prices of which have surged in recent months. Some of its suppliers were also hit by rising oil prices CLc1 LCOc1.

The company now forecasts a margin on earnings before interest, tax and amortisation (EBITA) of around 15 percent before acquisition and integration costs, at the lower end of its previously forecast range of 15 to 15.5 percent.

Legrand, by contrast, said on Thursday it was targeting an annual adjusted operating margin of at least 20 percent.

Of raw materials prices, Schneider Chief Executive Jean-Pascale Tricoire told Les Echos newspaper: "Their effect has never before been so strong on our results."

He said that at the beginning of the year the company had expected a 250 million euro ($357 million) additional hit from raw material price rises in the full year, but had already seen that in the first half alone.

For the full year, Schneider now expects 400 million euros in additional raw materials costs, he was quoted as saying.

Schneider reported first-half revenue up 10.2 percent on an organic basis to 10.34 billion euros ($14.77 billion), in line with analysts' forecasts, while confirming the company's previous forecast for full-year organic sales growth of 6 percent to 9 percent.

Earnings before interest, taxes and amortisation (EBITA) rose 14 percent to 1.413 billion euros. Analysts had forecast EBIT of 1.446 billion euros, according to Thomson Reuters I/B/E/S, but it was not immediately clear whether the figures were comparable.

Schneider has been on an extended buying spree in recent months, although the largest potential acquisition, of U.S. security and safety systems maker Tyco International ran aground.

Schneider, which most recently agreed to buy leading Chinese cleantech player Leader & Harvest Technologies Holdings Ltd, expects to keep making acquisitions going forward, mostly small or medium sized, Tricoire was quoted as saying. ($1=.7001 euro) (Editing by Will Waterman)

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