FRANKFURT Siemens AG will need more time to shake off problems at its energy business that have weighed on profits, its chief executive said on Thursday, indicating investors hoping for a fast improvement will have to be patient.
The company reported consensus-missing core profit for its financial third quarter. "There is no quick fix for this (energy business) matter," CEO Joe Kaeser told analysts and reporters.
Kaeser unveiled a corporate overhaul for Germany's second-biggest company by market value in May, dubbed "Vision 2020", that will simplify the group's structure and aims at making up ground lost to more profitable competitors such as Switzerland's ABB and U.S.-based General Electric.
The former finance chief, who got the top job when his predecessor was pushed out a year ago, has also sought to improve the way Siemens handles big risky projects, which led to average annual project charges of 700 million euros in recent years, to improve profitability.
In its fiscal third quarter through the end of June, Siemens booked higher than expected charges again, mostly related to projects to connect offshore wind farms to mainland power grids.
Group operating profit from Siemens's four main businesses - industry, energy, healthcare and infrastructure & cities - rose 37 percent to 1.74 billion euros ($2.33 billion) as year-earlier costs related to a cost-cutting programme were not booked this time. But the figure missed analyst consensus of 1.83 billion in a Reuters poll.
The margin on core operating profit widened to 9.5 percent from 6.8 percent but missed consensus of 9.9 percent.
Kaeser blamed the continued problems at the energy business - where third-quarter profit slipped by 6 percent - on a lack of cooperation from suppliers and service providers, such as construction or soil removal companies, leaving Siemens to foot the bill for delays the group did not cause.
"The lesson learned, obviously, is that it is better to rely on yourself than on many others," he said, adding recent "disappointments" meant Siemens would rethink the way it approaches projects in which it does not have full control.
Kaeser said the problems at the division were likely to persist well into 2015 but that Siemens was on the right track now to solve them.
"We changed the team there, we have a very clear plan on how to act and will continue to improve the situation," he said.
The energy business, which makes products ranging from gas and wind turbines to transformers, posted a 54 percent jump in new orders thanks to a few large contracts, indicating a future rise in revenues and accounting for more than half of Siemens's 101-billion-euro order backlog.
Analysts said while they did not see Siemens's conservative guidance for an increase in 2013/14 earnings per share by at least 15 percent at risk, it was disappointing that the group's financial results were marred by one-offs again.
Espirito Santo analyst Rob Virdee said the results "should remind (us) why Siemens trades at a discount to the sector", sticking to his recommendation to sell the stock.
Siemens trades at 12.7 times estimated 12-month forward earnings, at a discount to ABB and General Electric, which trade at multiples of 16.8 and 14.7, respectively, according to StarMine data. Its share price is up more than 10 percent since Kaeser took the helm last year, but has declined 5 percent so far this year on concerns as to whether he will be sufficiently aggressive in his changes to turn the company around.
They rose 1.5 percent to 94.09 euros by 0625 ET on Thursday, outperforming a 1 percent decline by Germany's blue-chip DAX index.
($1 = 0.7466 euros)
(Reporting by Maria Sheahan; Editing by Jeremy Gaunt)