July 25, 2013 / 1:21 PM / 4 years ago

UPDATE 2-Siemens abandons 2014 profit target

* 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 (Reuters) - 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.


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 target.

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.

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