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Despite the macroeconomic headwinds, Siemens AG reported relatively modest results for the first quarter of fiscal 2013 with a net income of $1.57 billion (€1.21 billion) or $1.84 per share (€1.42) compared to $1.79 billion (€1.38 billion) or $2.02 per share (€1.56) in the year-earlier quarter. Although earnings decreased on a year-over-year basis, it exceeded the Zacks Consensus Estimate by a penny.

Total revenue in the reported quarter increased 2% year over year to $23.51 billion (€18.13 billion), primarily due to 4% year-over-year growth in the emerging markets accounting for 33% of the total revenue for the quarter. Reported revenue surpassed the Zacks Consensus Estimate of $23.09 billion. However, broader macroeconomic uncertainties took its toll as orders declined 3% year over year to $24.82 billion (€19.14 billion). The book-to-bill ratio for the quarter was 1.06, while order backlog stood at $125.8 billion (€97 billion) at quarter-end.

Segment Results

In the Energy sector, Siemens recorded a 3% year-over-year rise in revenues, aided by positive currency translation effects and 27% growth at Wind Power division. On a geographic basis, revenue increased across all the divisions in the Americas, which offset a moderate decline in Europe and CAME (Commonwealth of Independent States, Africa and the Middle East), where only Wind Power division increased. The segment profit for the reported quarter surged 11.8% year over year to $735.3 million (€567 million) due to reduced project charges and subsequent loss from Power Transmission, and strong performances by the Fossil Power Generation and Wind Power division.

Healthcare sector profit increased 38.2% to $652.3 million (€503 million) led by commendable performances in the imaging and therapy systems businesses. Revenue increased 3% year over year, driven by higher growth in Asia and Australia.

In the Industry sector, revenue was down 1% year over year in the quarter due to lower top-line growth in Europe/CAME, Asia, and Australia. Sector profit plunged to $648.5 million (€500 million) due to weaker demand in high-margin short-cycle businesses in the Drive Technologies division.

Infrastructure & Cities sector recorded 2% revenue growth as Power Grid Solutions & Products, and Building Technologies divisions delivered strong performances, while Transportation & Logistics division faltered. Sector profit dipped 36% year over year to $166.0 million (€128 million) due to higher project charges in the Transportation & Logistics division.

Balance Sheet and Cash Flow

In the reported quarter, free cash flow from continuing operations was a negative $1.86 billion (€1.44 billion) compared to a negative $1.24 billion (€956 million) in the year-ago period. The year-over-year dip was primarily due to substantial cash outflows relating to the build-up of operating net working capital in the Energy sector.

Cash and cash equivalents at quarter-end were $10.15 billion (€7.82 billion) compared to $14.12 billion (€10.89 billion) at fiscal-end 2012. Long-term debt was relatively stable at quarter-end at $21.59 billion (€16.65 billion) compared to $21.89 billion (€16.88 billion) at fiscal-end 2012.


In order to better serve its customers, Nokia-Siemens Network (NSN) – a 50-50 joint venture between Nokia Corporation (NOK - Analyst Report) and Siemens decided to merge its Middle East and Africa (MEA) business into one single entity subsequent to the quarter-end. The transformation will NSN to provide a more integrated service to its customers thereby improving its service quality across the region. We remain encouraged by such activities of the company.

However, management opined that despite a strong beginning, no significant tailwind is expected for the remainder of the ongoing fiscal. At the same time, the company needs to be wary of stiff competition from industry bigwigs like ABB Ltd. (ABB - Analyst Report) and Koninklijke Philips Electronics NV (PHG - Analyst Report). Currently we have a Zacks Rank #2 (Buy) for Siemens.

Note: 1 € = $1.2969 (period average from Oct 1, 2012 to Dec 31, 2012)

         One Siemens ADR corresponds to one Siemens share.

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