Estimate

Aug 2, 2018

Siemens Plans Overhaul to Boost Growth as Profit Misses Estimate (Bloomberg) -- Siemens AG plans to streamline operations in a bid to boost profitability and navigate large-scale technology disruptions in many of the industries served by Europe’s largest engineering company. The Munich-based company will shrink the number of operating divisions to three from five, covering power, city infrastructure and digitization, according to a statement. The plans, set to be completed by March next year, will help boost revenue growth and the return on sales of Siemens’ industrial business by 2 percentage points in the medium-term, it said. The overhaul was outlined at the same time as third-quarter earnings, which showed so-called industrial business profit rose 2 percent to 2.21 billion euros ($2.6 billion), missing the 2.27 billion average estimate of analysts surveyed by Bloomberg. Siemens retained its full-year outlook. The earnings from the latest period showed a deep slump at the division making gas turbines and strong growth in digital operations, pointing to the need of a revamp into new technologies. With the reorganization, Kaeser is aiming to leave a lasting imprint on the once-sprawling manufacturer and guard against a fate similar to rival General Electric Co. The flagging U.S. giant has embarked on a far-reaching restructuring plan after coming under pressure from an activist investor and getting kicked out of the Dow Jones Industrial Average. New Fields The overhaul foreshadowed investments in new fields like energy management and charging networks for electric vehicles. On Wednesday, Siemens said it’ll pay 600 million euros to buy Mendix, a coding platform for businesses developing mobile and web apps. “It won’t be the biggest companies that survive, but the most adaptable,” Chief Executive Officer Joe Kaeser said in the statement. The company will “give our businesses considerably more entrepreneurial responsibility than before.” When company veteran Kaeser took the top post at Siemens in 2013, the German firm had 18 divisions and a byzantine structure. In a swipe at GE last year, Kaeser said “old-fashioned conglomerates no longer have a future.” The executive has focused on whittling down Siemens’ offering of goods and services by selling, merging or bringing businesses to the stock market. The last moves were an initial public offering of the health-care division, and a planned merger of the mobility unit with French company Alstom SA. Driving the overhaul is an accelerating move by customers for automated factory equipment and software to run manufacturing. The changes are also motivated by a sharp downturn in demand for gas turbines, once a flagship operations within the power and gas division. The company is cutting around 6,900 jobs mostly at the division and closing some factories. Earnings Highlights: Revenue fell 4 percent to 20.5 billion euros Industrial business profit rose 2 percent to 2.21 billion euros Profit at key divisions: Digital Factory: + 54 percent