January 24, 2012 / 6:06 AM / 7 years ago

Europe's debt woes end golden days at Siemens

MUNICH (Reuters) - Europe’s biggest engineering conglomerate Siemens AG (SIEGn.DE) suffered an unexpectedly sharp fall in core profit as the European debt crisis squeezed margins, especially in the renewable energy business.

Chief Executive Peter Loescher warned on Tuesday that 2012 would be a difficult year for Germany’s largest company by market capitalization, but stuck with a forecast for flat net income from continuing operations.

“For us 2012 will not be easy,” he said. “The golden days are gone.”

Shares in the group slumped 4.1 percent to 75.19 euros, their biggest intraday decline in four months and making them one of the top fallers on the German benchmark DAX index, down 1.4 percent .GDAXI.

Siemens — which makes trains, turbines, hearing aids and lightbulbs — is a bellwether for the euro zone’s biggest economy as well as the region as a whole, where a festering debt crisis is keeping a lid on investment expectations.

With the euro zone teetering on the brink of recession, manufacturers such as Siemens are clamoring for factory orders and rushing for a shrinking number of energy projects, which is putting pressure on prices and profits.

Siemens said operating profit at its main businesses declined 23 percent to 1.60 billion euros ($2.09 billion) in its fiscal first quarter. It missed the lowest estimate of 1.93 billion in a Reuters poll of analysts.

New orders shrank for the first time since the January-March quarter of 2010, declining 5 percent mainly due to a slump at its energy business.

“The uncertainties of the ongoing debt crisis have left their mark on the real economy,” Loescher said. “Although a recovery is expected in the second half of the year, we must work hard to achieve our goals.”

His comments come after U.S. rival General Electric (GE.N) last week stuck to its forecast of double-digit profit growth after posting lower-than-expected revenue.


Siemens’s Energy sector — which generates more than a third of group revenues — posted a profit margin slump to 7.8 percent from 13.1 percent as pricing pressure in wind power pushed the renewable energy business to a loss and approval for projects to connect offshore wind turbines to power grids was delayed.

Siemens declined to provide details on the delays, which forced it to book 203 million euros in one-time charges.

Danish wind turbine maker Vestas (VWS.CO) said recently it would cut more jobs while battling fierce competition, including from Chinese rivals, as well as the threat of subsidy cuts for renewable energy by hard-pressed governments forced to tighten budgets.

Siemens’s bread-and-butter Industry sector — which among others makes drive compressors and gears used in wind turbines — also reported a decline in profit and narrower margins as its customers demanded lower prices in renewable energy markets.

The business competes with Schneider (SCHN.PA), Rockwell Automation (ROK.N), Emerson (EMR.N) and Honeywell (HON.N).

Some analysts said they now doubt Siemens will reach its target of posting flat net profit from continuing operations of about 6 billion euros, excluding a year-earlier one-off gain.

“This quarter was a rather weak start into the year and we are now more convinced than before that Siemens will have to adjust its seemingly ambitious net income guidance,” WestLB analyst Thomas Langer said.

Ahead of the release of first-quarter results, analysts in a Reuters poll on average estimated full-year net profit would decline to 5.8 billion euros. CEO Loescher already said earlier this month that goal become more ambitious. ($1=0.7665 euros)

Editing by Jon Loades-Carter and Mike Nesbit

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