Siemens scraps 2020 forecast with industrial slump ongoing
Net profit in three months to March 31 fell 21% due to measures to fight coronavirus in Germany
Siemens abandoned its full-year earnings forecast and said orders in the second quarter - ended on March 31 - slumped, highlighting Germany’s industrial malaise as lockdowns to fight the coronavirus crushed global growth.
The European giant was able to keep factories running during a time when many manufacturing plants were forced to close doors, but the fallout from government-imposed measures to fight the virus has severely affected Siemens customers.
Profit fell at all divisions and the Munich-based company now sees a “moderate decline” in revenue for the financial year ending on September 30.
“Our organisation is often stretched to its limits,” chief executive Joe Kaeser said on a call with reporters on Friday.
“The big question is how long the bottom will be there. The answer is we unfortunately don’t know and neither do our customers.”
Second quarter profit fell 21 per cent yearly to $634 million (Dh2.3 billion), but this “was better than feared, and also ahead of competitors,” Morgan Stanley analyst Ben Uglow said in a note. “These numbers should be well-received.”
While quarterly revenue held up in part due to the performance of Siemens’ health division, other industrial companies haven’t fared so well.
General Electric announced on Monday it would cut 13,000 jobs from its jet-engine division, adding to reductions the company had announced in March. ABB warned the pandemic could crush a fragile recovery in China, its second-largest market.
The pandemic has sent European economies into a tailspin, with the euro-region forecast to contract 7.7 per cent this year, forcing unemployment and public debt higher.
Industrial production dropped 9.2 per cent in March in Germany, presaging grimmer figures for April when millions of people were mostly confined to their homes.
Siemens has so far avoided large-scale factory shutdowns due to long-term contracts making trains and turbines, but the company is a supplier to many industries that have been directly affected.
The group’s digital-industries division, seen as a bellwether for German industrial demand, is a major supplier to carmakers such as Volkswagen, which have seen operations suspended as dealerships closed across Europe.
Siemens sits at the intersection of Germany’s industrial heartland, supplying factory automation equipment to companies ranging from family-owned businesses to the world’s largest automakers. The company is seeking about €3bn from a new credit line to help the company through the virus crisis.
The collapse in the price of crude has hurt Siemens’ gas and power business, which supplies drives, compressors and other transmission equipment to the sector. The division will be spun off into a new company called Siemens Energy that will also include the firm’s stake in wind-power unit Siemens Gamesa Renewable Energy.
The spinoff is scheduled to take place by September.
Siemens also plans to separate its Flender unit, which makes drives used in wind turbines and other large generators. The company will fold another wind energy business into Flender and spin off the combined entity next year.
Updated: May 8, 2020 03:34 PM