By John Revill
ZURICH (Reuters) – Siemens stock surged on Friday after the German engineering company said it was speeding up cost savings to tackle the coronavirus downturn and the flotation of its energy business remained on track.
The trains to industrial software maker cut its 2020 revenue guidance and said it expected the coming weeks to be the worst of the downturn.
But it also announced plans to float its 2 billion euro ($2.2 billion) Flender mechanical drives business, as part of a strategy to make the group simpler and focus on factory and building automation. It may still keep a stake in the business.
Siemens shares were up 5.2% at 0945 GMT, leading the German DAX and the Stoxx Europe 600 industrial average, as investors were also reassured by an improvement at its flagship factory automation unit in the company’s fiscal second quarter.
The division’s profitability and orders rose in the three months to the end of March as customers stockpiled drives, controllers and monitoring systems used to automate factories.
“These results for Siemens were always about getting through them without an operating disappointment, following the Q1 miss, proving some resilience, and confirming the energy spin (off),” said J.P. Morgan analyst Andreas Willi.
“Overall, Siemens delivered on what was needed.”
Chief Executive Joe Kaeser said he thought the current quarter would be the worst of the crisis for Siemens, which reported a 64% drop in shareholders’ net profit for its second quarter.
“We are reasonably confident we are going to see the trough in our fiscal third quarter, based on what we hear from our customers and what we see in the supply chain,” Kaeser said.
“The question is … whether there will be some sequential relief in the fourth quarter or not,” he said. “We are planning more for a two or three quarters trough before we see some substantial up-tick again.
Siemens said it now expected a “moderate decline” in comparable full year revenue, a figure which Chief Financial Officer Ralf Thomas said meant a drop of up to 5%. Siemens had previously guided for moderate sales growth in 2020.
China was seeing some signs of recovery, while the United States was probably at its lowest ebb, Kaeser said. India, where 20 of Siemens factories were closed, was also difficult, he added.
In response to the pandemic, Siemens has speeded up its previously announced efficiency drive, bringing forward 165 million euros in savings at its digital industries and smart infrastructure divisions to the end of 2021.
During its second quarter, shareholders’ net profit dropped to 652 million euros, group orders fell 8% to 15.15 billion euros, while adjusted operating profit for its industrial business dropped 18% to 1.59 billion euros.
The figures do not include Siemens Gas and Power and Siemens Gamesa Renewable Energy, which are being separated into a new company called Siemens Energy that will be floated later this year.
($1 = 0.9230 euros)
(Reporting by John Revill; Editing by Michelle Martin and Mark Potter)