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Siemens points to deteriorating demand as profit falls

By John Revill
FILE PHOTO: The Siemens logo is seen on a building in Siemensstadt in Berlin

By John Revill

MUNICH, Germany (Reuters) - Siemens said on Thursday deteriorating demand from automotive and machine building firms hit its third-quarter profit, becoming the latest industrial company to warn about a weaker environment hitting its business.

The company's flagship factory automation unit saw orders and revenue fall as customers in Europe and the Americas held back on investments as economies slowed.

Profit margins also shrank as Siemens sold less of its more profitable short-cycle products such as industrial controllers and drives, dragging down the company's net profit by 6%.

Chief Executive Joe Kaeser said the trains to turbines maker had seen conditions become much weaker in its key markets but the company nonetheless confirmed its full-year guidance.

"As indicated already quite some time ago, geopolitics and geoeconomics are harming an otherwise positive investment sentiment," he said in a statement.

Shares in Siemens were down 5.04% at 0816 GMT after falling to their lowest level since February earlier.

Siemens' Swiss peer ABB last week warned of a slowdown in China, with lower orders. German luxury carmaker Daimler has also revised down its forecast for Mercedes-Benz car sales.

Other companies on Thursday also highlighted tougher conditions. The world's biggest steelmaker ArcelorMittal cut its forecast for global steel demand, with a sharper reduction now envisaged in Europe due to a lean automotive market. Germany's Rheinmetall downgraded a forecast for its automotive division.

Data also showed manufacturing activity in the euro zone contracted at its steepest rate since late 2012 last month as demand sank.

During its third quarter Munich-based Siemens reported net profit of 1.14 billion euros ($1.26 billion), down from 1.21 billion euros a year earlier. It missed analyst expectations for 1.18 billion euros in a poll compiled by the company.

Orders rose 8% to a better-than-expected 24.51 billion euros, while revenue increased 4% to 21.28 billion euros, matching forecasts.


STRUGGLING FLAGSHIP

But operating profit in Siemens' industrial business fell 12% as its flagship digital industries business struggled with falling demand for factory automation and motion control systems.

Nonetheless, Siemens said it continued to anticipate that orders would exceed revenue for a book-to-bill ratio above 1, meaning it gets more orders than it executes.

It expects the adjusted margin on earnings before interest, taxes, depreciation and amortisation (EBITDA) for its industrial businesses to reach the lower half of the 11.0% to 12.0% range, excluding severance charges. During the third quarter, the measure slipped to 9.9% from 11.7% a years earlier.

It also confirmed its expectation that it will achieve basic earnings per share from net income in the range of 6.30 to 7.00 euros excluding severance charges.

Chief Financial Officer Ralf Thomas said he expected the situation to improve, with the company introducing cost saving measures to improve margins in digital industries, which shrank to 14.8% from 19.5% a year earlier.

"There are lots of levers large and small to use to make sure the short-cycle business is continuing to be very successful," he said, adding he thought the situation would begin to improve in the next three months.

Still, he remained cautious about prospects with automotive and machine builder customers - which generate a third of digital industries revenue - saying conditions would remain tough well into 2020.

Analysts raised concerns about Siemens' shrinking margins, with Andreas Willi at JPMorgan describing the results as the company's worst quarterly performance in recent years.

"The company had previously maintained a positive outlook despite the clear signs of a slowdown and the poor margin performance of Q3 indicates that it was not prepared," he said.


($1 = 0.9055 euros)


(Reporting by John Revill; Editing by Michelle Martin and David Evans)