Siemens lifts outlook as software unit boosts earnings
Power and gas unit notches another decline in earnings
Siemens raised its full-year outlook on Wednesday following first-half results that beat analysts forecasts thanks to strong earnings growth in the group's software unit which offset another decline in its fossil fuel based power unit.
Europe's largest conglomerate said second quarter revenue was €20.1bn, flat from a year ago and in line with forecasts. Net income in the quarter rose to €2.0bn, up 39 per cent from a year ago and in the face of forecasts for a decline. Siemens said the figure includes a €700m profit from "centrally managed portfolio activities."
The group raised its outlook for basic earnings per share from net income to a range of €7.70 to €8.00, versus an earlier range of €7.20 to €7.70.
Full year revenue is still expected to see "modest" growth and profit margin in its core industrial businesses are expected between 11.0% and 12.0%.
"Most of our businesses, primarily our digital offerings, showed impressive performance and operationally more than offset structural challenges in fossil power generation," said CEO Joe Kaeser. "By raising our guidance, we demonstrate our commitment to the company’s capability to master structural change and shape digital industry."
The power and gas unit is suffering from overcapacity as global energy needs shift away from fossil fuels and move into renewables. Siemens, which on Tuesday reached a labour agreement to restructure the unit and save hundreds of millions of euros, said profit at the unit fell 74 per cent from a year ago to €114m.
That decline hurt earnings for Siemens’ broader grouping of industrial businesses, which saw profits fall from €2.5bn a year ago to €2.3bn, "held back by a sharp decrease in profit and profitability at Power and Gas," Siemens said. It added that "market forces drove a €325m reduction in profit year-over-year in the troubled division.
Analysts had expected the decline to be worse, with forecasts for industrial profits at €2.1bn.
The company said the power and gas troubles were offset by growth in Digital Factory — its high-margin technology-based services unit for integrating hardware and software.
The software division "sharply increased its profit on strength in its short-cycle and product lifecycle management software businesses," Siemens said, noting that revenue grew by a fifth and profits climbed 40 per cent to €682m.
Aside from the problems at its power and gas division, Siemens said currency headwinds took seven percentage points off order and six percentage points from revenue development.