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Industrial goods manufacturer Siemens AG (SI - Analyst Report) reported third quarter fiscal 2013 net income of $1,433.5 million (€1,098 million) or $1.65 per share (€1.26) compared with $1,005.3 million (€770 million) or $1.10 per share (€0.84) in the year-earlier quarter. Although earnings per share increased on a year-over-year basis, it missed the Zacks Consensus Estimate of $1.74.

Total revenue in the reported quarter declined 1.5% year over year to $25.1 billion (€19.2 billion), primarily due to drop in revenues from the Energy and Industry segments. On a regional basis, revenues decreased significantly in the Americas owing to weak wind power markets in the U.S.

However, orders improved 19% year over year to $27.6 billion (€21.14 billion) as Siemens won major long-cycle contracts for trains and maintenance. The book-to-bill ratio for the quarter was 1.10, while order backlog stood at a record high of $133.17 billion (€102 billion) at quarter-end.

Segment Results

In the Energy sector, Siemens recorded a 5.5% year-over-year decline in revenues to $8.6 billion (€6.6 billion) due to lower contributions from all sub-segments. On a geographic basis, revenues declined considerably in the Americas, but increased in Asia and Australia, and were relatively flat in Europe/ CAME (Europe, the Commonwealth of Independent States, Africa and the Middle East). The segment profit for the reported quarter was down 37.0% year over year to $561.4 million (€430 million). The decline in sector profit was largely due to charges of $133.17 million (€102 million) under the “Siemens 2014” program, which is intended to reduce the sector’s cost structure, adjust capacity and optimize regional footprint in accordance with demand. Segment profit was also held back by $118.8 million (€91 million) in charges in the Wind Power Division, related to inspection and retrofitting of onshore turbine blades in the U.S.

Healthcare sector profit increased 26.0% to $651.5 million (€499 million) driven by improvements in cost structure resulting from its ongoing Agenda 2013 initiative as well as lower charges associated with this initiative. Revenues improved 0.7% year over year to $4.4 billion (€3.4 billion) driven by a healthy contribution from the imaging business. On a geographic basis, revenues were up in Asia-Australia and Europe/CAME, and down in the Americas.

In the Industry sector, revenues were down 2.2% year over year in the quarter to $6.5 billion (€5.0 billion) due to lower top-line growth in all geographic regions. Orders rose in Europe/CAME, Asia and Australia but declined in the Americas. Sector profit plunged 33.6% year over year to $453.0 million (€347 million) due to $182.8 million (€140 million) charge associated with “Siemens 2014” program that aims to reduce costs related with administrative processes and improve the sector’s global footprint.

Infrastructure & Cities sector recorded a 4.3% year-over-year improvement in revenues as all sub-segments except Building Technologies reported healthy businesses. On a geographic basis, revenues were up in Asia, Australia and Europe/CAME and down in the Americas. Sector profit plummeted a staggering 107% year over year to a loss of $19.6 million (€15 million) as the company recorded $235.0 million (€180 million) in charges due to “Siemens 2014” program.

Balance Sheet and Cash Flow

In the reported quarter, free cash flow from continuing operations was $1,270.3 million (€973 million). Net cash from operating activities at quarter-end stood at $1,793.9 million (€1,374 million).

Cash and cash equivalents at quarter-end were $7,926.3 million (€6,071 million), while long-term debt was $24.9 billion (€19.1 billion).

Outlook

In fiscal 2013, Siemens is implementing a company-wide program titled “Siemens 2014”. The program is designed to support a uniform single framework for sustainable value creation.

For fiscal 2013, the company expects to record €1.0 billion in charges for this program. Income from continuing operations for fiscal 2013 is expected to be €4.0 billion, down from the previously guided figure of €4.5 billion.

Siemens presently has a Zacks Rank #5 (Sell). Other players in the industry worth reckoning include Garmin Ltd. (GRMN - Analyst Report), Koninklijke Philips N.V (PHG - Analyst Report) and Universal Electronics Inc. (UEIC - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

Note: 1 € = $1.3056 (period average from Apr 1, 2013 to Jun 30, 2013)

         One Siemens ADR corresponds to one Siemens share.

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