German industrial group Siemens posted a slightly larger-than-expected 5 per cent drop in quarterly industrial profit as a weak result at its digital factory unit compounded problems at its energy operations.
Siemens said yesterday it would cut an additional 4,500 jobs, or roughly one per cent of the global workforce, as it struggles with low demand and price erosion in its core gas turbines business while grappling with a host of other underperforming operations. Half the job cuts will come in Germany.
Chief executive Joe Kaeser is trying to streamline the company’s sprawling portfolio and change the corporate culture to help it close a profitability gap with rivals General Electric and ABB.
But he is fighting on many fronts as slowing economic growth in major markets dampens appetite for infrastructure spending while structural change and weak demand challenge the energy businesses that account for about 40 per cent of Siemens’ sales.
Profit from Siemens’ industrial businesses in the quarter to end-March was €1.7 billion after €98 million in restructuring costs for job cuts. That was below a Reuters poll average of €1.78 billion.
The trains-to-turbines group confirmed its full-year targets, including an industrial profit margin of 10-11 per cent, after making nine per cent in its fiscal second quarter, down from 10.3 per cent a year earlier.
“While the company has maintained full-year guidance, we struggle to see how the company will reach a 10-11 per cent industrial margin,” analysts at Barclays said. Group orders rose seven per cent on a comparable basis to a better-than-expected €20.8 billion, helped by large rail orders, while sales were flat at €18 billion. Siemens had guided to a slight organic sales decline.
Siemens said it would restructure its chronically underperforming businesses, which it identified last year as accounting for 18 per cent of revenues and zero profit.
“Siemens will concentrate on putting the businesses back on a sustainably profitable basis primarily through its own efforts,” the company said, confirming a Reuters story from last week.
Profit from Siemens’ digital factory unit, where it hopes to gain an edge by combining its expertise in factory automation and industrial software, fell 13 per cent to €355 million, missing the Reuters poll average of €429 million.
Power and gas profit fell 34 per cent, less than expected, while healthcare – its most profitable unit, which it is splitting off from the group – had a two per cent decline.