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Impressive Q1 Earnings at Siemens

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Industrial goods manufacturer Siemens AG (SI) reported solid first quarter fiscal 2014 net income of €1,457 million ($1,982.8 million) or €1.68 per share ($2.29), up from €1,214 million ($1,652.1 million) or €1.40 per share ($1.91) in the year-earlier quarter. The healthy year-over-year increase in earnings is primarily attributable to the company’s stringent cost-cutting strategy, owing to which cost of sales drastically declined to €12,086 million ($16,447.8 million) in the reported quarter from €12,738 million ($17,335.1 million) in the year-ago period. Total sector profit was €1.789 billion ($2.43 billion), up from €1.560 billion ($2.12 billion) in the year-earlier quarter, largely driven by a strong performance by the Infrastructure & Cities segment.

Total revenue in the reported quarter decreased 3.3% year over year to €17,325 million ($23,577.6 million), primarily due to a drop in revenues from all the segments except Infrastructure & Cities. On a regional basis, revenues decreased significantly in the Americas owing to weak wind power markets in the U.S.

For first quarter fiscal 2014, orders increased 9% year over year to €20,836 million ($28,355.7 million) due to higher orders from all regions and higher volume from large orders. The book-to-bill ratio for the quarter was 1.20, while order backlog reached a record high of €102 billion ($138.8 billion) at quarter end.

Segment Results

In the Energy sector, Siemens recorded an 8% year-over-year decline in revenues to €5,782 million ($7,868.7 million), dragged by significant drop in revenues in Europe/ CAME (the Commonwealth of Independent States, Africa and the Middle East) and the Americas, partially offset by growth in Asia and Australia. The segment profit for the reported quarter increased 23% year over year to €506 million ($688.6 million) due to a robust Wind Power business. From fiscal 2014, Siemens has combined the Fossil Power Generation Division and the Oil & Gas Division into a single unit under the name Power Generation.

Healthcare sector profit decreased 6% to €471 million ($641.0 million) due to lower revenues. Revenues dipped 5% year over year to €3,199 million ($4,353.5 million) in the wake of weak economic conditions in Europe, uncertainty in the healthcare market and an excise tax on medical devices in the U.S., and slowing growth in China.

In the Industry sector, revenues were down 2% year over year in the quarter to €4,611 million ($6,275.1 million) as growth in Europe/CAME was more than offset by a decline in the Americas. Sector profit was down 5% year over year to €482 million ($655.9 million) due to adverse currency translation effects.

Infrastructure & Cities sector recorded a 5% year-over-year improvement in revenues due to solid growth at Transportation & Logistics. On a geographic basis, revenues were up in Asia, Australia and Europe/CAME and declined in the Americas. Sector profit increased a notable 133% year over year to €330 million ($449.1 million) due to improved performance across the sector and solid project execution in the Transportation & Logistics business. Sector profit also increased due to a comparatively better business mix, particularly within Power Grid Solutions & Products. The healthy sector profit was also attributable to the solid execution of the “Siemens 2014” program, which reduced the sector’s cost structure, adjusted capacity and optimized regional footprint as per demand.

Balance Sheet and Cash Flow

Net cash used in operating activities at quarter-end stood at €303 million ($412.4 million). Cash and cash equivalents at quarter-end were €8,885 million ($12,091.6 million), while long-term debt was €18,377 million ($25,009.3 million). For the reported quarter adjusted ROCE (return on capital employed) was 18.0%, which was well within the target range of 15% to 20%, compared with 14.9% in the year-ago quarter.


The company expects markets to remain challenging in fiscal 2014 with recovery in short-cycle businesses occurring in the latter half of the fiscal. Siemens expects orders to exceed revenues for a book-to-bill ratio above 1. Earnings per share for fiscal 2014 are anticipated to increase by at least 15% from €5.08 in fiscal 2013.

Siemens presently has a Zacks Rank #5 (Strong Sell). Players in the industry worth reckoning include GigOptix, Inc. (GIG), IEC Electronics Corp. (IEC) and TE Connectivity Ltd. (TEL), each carrying a Zacks Rank #2 (Buy).

Note: 1 € = $1.3609 (period average from Oct 1, 2013 to Dec 31, 2013)

         One Siemens ADR corresponds to one Siemens share.

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