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Siemens Quarterly Profit Surge Comes With Cautious Outlook

Oliver Sachgau
Siemens Quarterly Profit Surge Comes With Cautious Outlook

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Siemens AG beat expectations for fourth-quarter profit, while warning a manufacturing slowdown will lead to a decline in some factory-equipment volumes next year.

Europe’s biggest engineering company put forward the cautious outlook Thursday after its health and software operations helped to boost its main profit indicator by a fifth. Adjusted earnings before interest, taxes, and amortization from the company’s industrial businesses totaled 2.64 billion euros ($2.92 billion), 12% higher than analysts had expected. The shares rose as much as 2.4%.

The guidance is “a relief after recent market conjecture of a much more challenging year for profits in 2020,” Citigroup analysts including Martin Wilkie wrote in a report, calling the overall outlook “complicated.”

The German industrial giant is on the front lines of a manufacturing slump that has hit the global car industry particularly hard. The maker of factory equipment and software depends on investment by companies, which often drops during a downturn. German industrial production is continuing to worsen.

Read more: German Industry Slump Deepens as Recovery Proves Elusive

Chief Executive Officer Joe Kaeser said in an interview on Bloomberg TV that the slump hitting its own operations will “level out over the next six months.”

The company expects a “moderate decline” in market volume for its short-cycle businesses, which refers to orders that have a relatively fast turnaround. The software and automation division, called digital industries, would face “continued weakness” in its most important markets, particularly the automotive and machine tool industries, it said.

What Bloomberg Intelligence Says

“Siemens’s 2020 guidance points to another year of stagnant profit, and suggests progress on its Vision 2020+ strategy will be key to lowering the conglomerate discount that’s holding back its valuation.”

-- Johnson Imode, BI industrial analyst

A planned spinoff of the gas and power division is on track for next year, the company said. Kaeser has spearheaded a breakup of its conglomerate structure into a holding of core businesses and stakes in listed former units.

Siemens already warned in August of a sharp deterioration in some markets that was going to make full-year goals harder to reach.

Earnings Highlights

Revenue rose 8% to 24.52 billion euros. Analysts had predicted 22.96 billion euros.Orders rose 2% on a comparable basisSiemens gave targets for division margins for the next fiscal year with a range of 17% to 18% for digital industries to 2% to 5% for gas and power

(Updates with analyst comment in third paragraph.)

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, Frank Connelly

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