German industrial conglomerate Siemens AG (SI) Wednesday is set to
report a significant increase in net profit on a one-time gain from the sale of
a minority stake in nuclear-power venture Areva NP, while its sales pipeline is
set to benefit from the continuing rebound across its business lines.
Siemens earlier this year sold its 34% holding in Areva NP for EUR1.62 billion
to
France
's
Areva SA (CEI.FR), which gained full control. The transaction will boost
Siemens' profit as the stake was valued at only EUR190 million in the company's
books at the end of September, the end of its fiscal year.
As a result, fiscal second-quarter net profit is expected to surge 74% to
EUR2.57 billion, according to the average estimate in a Dow Jones poll of
analysts.
Siemens decided more than two years ago to quit its engagement in Areva NP and
at the time said it planned to form a partnership with
Russia
's
Rosatom instead. Areva objected to the move and initiated arbitration against
Siemens, which is still ongoing and will decide whether the value of the 34% stake
in Areva NP will be reduced or increased by as much as 40%.
Meanwhile, Siemens already said in early April that business development was
"robust" in the period, with order intake expected to come in near
the first quarter level of EUR20.8 billion, while revenue should
"easily" have reached the December quarter's EUR17.6 billion.
A rebound in demand is expected to lead to a significant increase in
second-quarter orders compared with a year earlier. Munich-based Siemens offers
a wide range of products, from wind turbines to high-speed trains and medical
scanners. Its rivals include General Electric Co. (GE) and ABB Ltd. (ABB), both
of which last month gave an upbeat outlook after reporting a jump in quarterly
earnings.
"Demand is still recovering," Deutsche Bank analysts Peter Reilly and
Martin Wilkie said in a recent note on Siemens, in which they confirmed their
buy rating for the stock. "We therefore think profits can continue to grow
even if margins are close to peak."
Siemens is also reaping the fruits of cost-cutting measures that Chief
Executive Peter Loescher implemented after he took the helm in 2007 to
streamline the conglomerate's complex array of businesses. Those moves included
the elimination of more than 10,000 jobs while aligning the company's operating
units along the three main sectors of industry, energy, and healthcare.
Still, the new structure didn't last long; in March Siemens said it would form
another sector focused on infrastructure and cities, that will combine certain
activities from the industry and energy sectors. The company also said it plans
to float a majority stake in its Osram lighting unit, which competes with
Amsterdam-based Royal Philips Electronics NV (PHIA.AE), on the stock exchange
later this year.
As a consequence, Osram will be a discontinued operation in Siemens'
second-quarter earnings for the first time, as will information technology unit
SIS, which Siemens agreed to sell to
France
's
Atos Origin SA (ATO.FR) in December. Chief Financial Officer Joe Kaeser said in
April that Siemens will amend its outlook to account for those changes. He also
said that growth will probably cool in the second half as the comparison base
gets tougher.
Siemens previously forecast profit from continued operations to gain at least
25% to 35% in fiscal 2011, with order intake to rise significantly and sales to
grow moderately.
At 1251
Monday, Siemens shares were trading up 0.5% at EUR98.74.