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Siemens Falls Short of Q4 Earnings Estimates

GRMN SI PHG MG

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Industrial goods manufacturer Siemens AG (SI - Analyst Report) reported fourth quarter fiscal 2013 net income of €1,068 million ($1,414.5 million) or €1.18 per share ($1.56), down from €1,191 million ($1,577.4 million) or €1.29 per share ($1.71) in the year-earlier quarter. In addition to a year-over-year decline, the reported earnings also missed the Zacks Consensus Estimate of $1.61.

For fiscal 2013, net income increased to $5,839.3 million (€4,409 million) or $6.66 per share (€5.03) from $5,671.1 million (€4,282 million) or $6.21 per share (€4.69) in fiscal 2012.

Revenues & Orders

Total revenue in the reported quarter decreased 1.3% year over year to $28.1 billion (€21.2 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. The reported quarterly revenues exceeded the Zacks Consensus Estimate of $27.1 billion. For fiscal 2013, revenues declined 1.9% year over year to $100.5 billion (€75.9 billion).

For fourth quarter fiscal 2013, orders dropped 1% year over year to $27.8 billion (€21.0 billion) due to lower orders from Europe/ CAME (Europe, the Commonwealth of Independent States, Africa and the Middle East). However, on an organic basis, excluding currency translation and portfolio effects, orders and revenues both rose 3% for the reported quarter.

For fiscal 2013, orders increased 8% year over year to $109.1 billion (€82.4 billion) due to a higher volume from large orders compared with the prior year. The book-to-bill ratio for the quarter was 0.99, while order backlog stood at $132.4 billion (€100 billion) at quarter-end.

Segment Results

In the Energy sector, Siemens recorded a 2.8% year-over-year decline in revenues to $9.8 billion (€7.4 billion), dragged by significant drop in revenues in the Americas, Asia and Australia, which was partially offset by a growth in Europe/ CAME. The segment profit for the reported quarter increased astronomically by 246% year over year to $747.0 million (€564 million) due to stellar performances by Fossil Power Generation, Wind Power and Oil & Gas.

The sector profit soared despite charges of $200.0 million (€151 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. Moving forward, from fiscal 2014, Siemens will combine the Fossil Power Generation Division and the Oil & Gas Division into a single unit under the name Power Generation.

Healthcare sector profit decreased 4.8% to $796.0 million (€601 million) due to lower revenues and higher charges from its ongoing Agenda 2013 initiative. Revenues dipped 1.6% year over year to $4.9 billion (€3.7 billion) driven by lower revenues in Asia, Australia and the Americas.

In the Industry sector, revenues were down 5.3% year over year in the quarter to $6.6 billion (€5.0 billion) due to lower top-line growth in all geographic regions and continued softness in the sector’s short-cycle markets. Sector profit plunged 61.4% year over year to $368.2 million (€278 million) due to $307.3 million (€232 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 4.4% 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 were flat in the Americas. Sector profit plummeted 60.1% year over year to $219.9 million (€166 million) as the company recorded $337.7 million (€255 million) in charges due to “Siemens 2014” program.

Balance Sheet and Cash Flow

In the reported quarter, free cash flow increased to $5,770.4 million (€4,357 million) from $5,732.0 million (€4,328 million) in the year-ago period. Net cash from operating activities at quarter-end stood at $6.8 billion (€5.1 billion).

Cash and cash equivalents at fiscal-end were $12.2 billion (€9.2 billion) compared with $14.4 billion (€10.9 billion) in the prior-year period, while long-term debt increased to $24.5 billion (€18.5 billion).

Outlook

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

The company expects markets to remain challenging in fiscal 2014 with recovery in short-cycle businesses occurring in the later 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 #2 (Buy). Other players in the industry worth reckoning include Garmin Ltd. (GRMN - Analyst Report), Koninklijke Philips N.V (PHG - Analyst Report) and Mistras Group, Inc. (MG - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

Note: 1 € = $1.3244 (period average from Jul 1, 2013 to Sep 30, 2013)

         One Siemens ADR corresponds to one Siemens share.

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