* Siemens had targeted at least 12 pct margin in 2014
* Cites lower market expectations
* Says cost-cutting is largely on track
* Shares drop 5.8 percent
FRANKFURT, July 25 Germany's Siemens AG
no longer expects to meet a target for next year's
profit margin, the company said on Thursday, adding to signs
that Chief Executive Peter Loescher is struggling to turn the
engineering group around.
Germany's second-biggest company by market value after
Volkswagen, had aimed to push up the margin on its
core operating profit to at least 12 percent from 9.5 percent by
cutting costs and focusing on its most profitable businesses.
In a statement on Thursday, it cited lower expectations for
how its markets would perform for the more pessimistic view.
"This indicates notable market deterioration in the recent
past and a weaker progress with regards to the cost savings
target," DZ Bank analyst Jasko Terzic said.
Pressed for further details on the reasons for the shortfall
on the target, Siemens officials declined to comment.
Industrial companies like Siemens have been suffering from a
slowdown in the global economy, and recent weak manufacturing
data from China has fanned concern that a recovery will not
materialise until next year.
CEO Loescher has been trying to boost Siemens' margins
following criticism for being too slow to react to a downturn in
the global economy.
He put on the back-burner a plan to increase annual sales by
about a third to 100 billion euros ($132.36 billion) and late
last year launched a push to save 6 billion euros over two years
to compete with rivals such as General Electric Co.
But Siemens, whose products range from gas turbines to fast
trains and hearing aids, has so far failed to make the progress
Loescher promised investors at the time and just three months
ago curbed its profit outlook for this year.
GE last week unveiled a surprise jump in its backlog of
orders for locomotives, X-ray machines and scores of other
industrial products, and Dutch rival Philips this week
reported robust orders for ultrasound and scanning products.
Shares in Siemens dropped 5.8 percent to 78.70 euros by 1444
GMT, making it the biggest faller among companies in Germany's
blue-chip DAX index, which was down 1.1 percent.
"We are surprised that the stock is not down more given how
central the 12 percent margin target was to the investment case
on Siemens," JP Morgan analysts said.
"LARGELY ON TRACK"
Along with streamlining internal processes and cutting
procurement costs, Siemens has been trying to boost its margins
through acquisitions and disposals.
"The measures for optimising the portfolio and reducing
costs are largely on track," Siemens said on Thursday, which
analysts interpreted as an indication that some parts of the
programme may be falling short.
Siemens' results have also been marred in recent quarters by
both weak industry demand and one-time charges related to delays
in the delivery of high-speed trains or the power link-up of
offshore wind farms to mainland networks.
Sources told Reuters on Thursday that Siemens would be hit
by further project charges, after two instances of wind turbine
rotor blades breaking earlier this year.
Siemens is due to publish financial results for its fiscal
third quarter on Aug. 1, when analysts expect a new margin
Swiss industrial group ABB, a major competitor to
Siemens in power systems and industry automation, earlier on
Thursday reported quarterly net profit that missed expectations,
casting doubt on whether it can meet market views for the latter
part of the year.