July 15, 2014 / 9:11 AM / 3 years ago

UPDATE 1-Draegerwerk shares tumble after warning of euro strength

* Draegerwerk cuts outlook for 2014 EBIT margin

* Now sees margin at 4.5-6.5 pct vs 8-10 pct

* Says to review medium-term targets

* Announces plans for efficiency measures

* Shares drop 17 pct (Adds detail, background, comment)

By Maria Sheahan

FRANKFURT, July 15 (Reuters) - German medical technology group Draegerwerk has warned of a squeeze on sales from the strong euro and said it had suffered tough trading in a number of markets, sending its shares down 17 percent to a 2-1/2 year low.

Draegerwerk has suffered from the strong euro because it makes most of its products - which range from incubators for premature babies to surgical lights and breathing air systems for fire fighters - in Europe but generates almost half of its sales outside its home continent.

It had already warned in May that its business environment was becoming more difficult and now said it expected its margin on earnings before interest and tax (EBIT) to come to between 4.5 percent and 6.5 percent this year, compared with previous expectations for 8 to 10 percent.

In addition to the effects of the strong euro, Draegerwerk cited a substantial decline in business with Russia, slow demand from medical customers in the United States and a weak business performance in some countries in Asia-Pacific as reasons for the warning.

To combat a slide in profitability, it said it was working on a set of efficiency measures for the short to medium term, without providing details.

“Any attempts to implement new cost savings initiatives or capitalise on share price weakness to clean up its capital structure would likely help pave the way to unlocking value from the business and shares,” analysts at banking group Berenberg said in a note.

Draegerwerk now sees full-year sales growing by between 2 percent and 4 percent before currency effects, compared with a previous outlook for 3 to 6 percent, but said forex moves were likely to shave more than 2 percentage points off the net outcome, indicating currency could eradicate any improvement in reported sales.

In the second quarter, its sales slipped by 1.2 percent to 559.9 million euros ($763.7 million) while order intake was down by 2.3 percent.

Draegerwerk said it would review its medium-term guidance but would not announce any changes until it publishes financial results for the full year 2014 early next year.

The stock dropped about 17 percent and traded as low as 60.50 euros, its lowest since January 2012. “What a shame again ... sell the shares if you can,” a local trader said.

$1 = 0.7331 Euros Editing by David Holmes

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