Siemens Net Income Drops, New Orders Please

 
 
By Reuters -  |  Posted 2008-04-30
 
 
 

MUNICH, April 30 (Reuters) - Siemens (SIEGn.DE: Quote, Profile, Research) reported strong growth in second-quarter orders and its shares rose despite net income dropping by a worse-than-expected two-thirds on the back of discontinued operations and charges at two units.

Shares in Europe's biggest engineering company were up 2.7 percent at 75.36 euros by 1534 GMT, making them the biggest second-biggest gainers and strongest positive weight in Germany's blue-chip index .GDAXI.

Amid a major overhaul and a struggle sign off on a worldwide corruption scandal, the turbines-to-trains maker warned in March that project reviews of three divisions would mean a hit on earnings of around 900 million euros.

The extraordinary charges, mainly at its power generation and transportion arms, came to nearly 860 million euros, Chief Executive Peter Loescher announced, adding that the reviews would be completed by the end of the company's fiscal third quarter on June 30.

He said new orders in the second quarter indicated "that we have good growth opportunities in the future" after new orders rose 15 percent to 23.4 billion euros.

Second quarter net income fell 67 percent to 412 million euros ($640.6 million), missing the 451 million average from a Reuters poll of 19 analysts.

Operating profit fell to 1.2 billion from 1.78 billion but beat analyst expectations of 1.016 billion.

Siemens' outlook had reassured and would prompt a positive, if muted share reaction, Citigroup analysts said.

They added that Wednesday's share rise was due to relief "that no new negatives have emerged and that current order trend remains strong."

Shares in the Munich-based company have lost a third of their value this year, hurt by project delays and the fallout of a widening corruption probe which has already cost several top managers their jobs.

SPILLOVER

Loescher said he was "guardedly optimistic" about the second half but warned that a global crisis in the financial sector could spill over into other sectors.

"We already see first signs of cautiousness on the part of customers in our standard products business here in Germany," he said.

Loescher, an outsider who took charge mid-2007 to slim down and reshape the group, wants to restructure it and match the profitability of rivals such as General Electric (GE.N: Quote, Profile, Research).

Siemens said it expected revenue, excluding acquisitions, to grow twice as fast as global economic growth this fiscal year.

But full-year group profit from operations and income from continuing operations will remain flat, it said.

Loescher said the outlook did not include the potential impact from a corruption probe and restructuring measures.

Siemens is being investigated by authorities in numerous countries for payments supposedly made to consultants between 1999 and 2006 that are suspected of being bribes. Siemens itself is investigating transactions worth 1.3 billion euros.

The U.S. Securities and Exchange Commission (SEC) and Department of Justice (DoJ) as well as prosecutors in Munich are also carrying out investigations.

Siemens has said that the SEC and the DoJ are willing to negotiate a settlement in respect of possible violations of U.S. law by Siemens.

Chief Financial Officer Joe Kaeser reiterated that he expected those talks to take many months.

Loescher, who has regrouped the company's ten divisions into three and scaled down management, reiterated that the company would continue to streamline its portfolio.

Divestment of corporate telecoms unit Siemens Enterprise Networks, which it has been trying to sell for almost two years, is expected to result in a loss.

(Editing by David Cowell)