Siemens Beats Forecasts, Ups Goals, Buys Back Shares

Industrial group Siemens delivered stronger quarterly results than expected, raised profitability targets and announced a 10 billion-euro ($14.6 billion) share buyback program.

Siemens shares rose as much as 5.5 percent against weak European markets on Thursday as new Chief Executive Peter Loescher delivered on his promise to reduce complexity and raise transparency at the scandal-hit German conglomerate.

All of Siemens' new core businesses -- industry, energy and healthcare -- beat expectations in the July-September quarter as the company said it had benefited from favorable macroeconomic conditions despite a slowdown in U.S. growth.

Next year, Siemens said, sales and orders should increase at twice the rate of global GDP growth while operating profit should grow at least twice as fast as the top line.

Siemens shares were up 5 percent at 99.9 euros, making the stock one of the top gainers in a 0.2-percent weaker German blue-chip DAX.

"We regard the buyback issue as highly material ... and underlying results appear robust," Morgan Stanley analysts wrote in a note. "It is also worth mentioning that there is significantly greater transparency in the report."

Siemens more than doubled quarterly operating profit to 1.990 billion euros from 749 million euros a year ago. New orders rose 21 percent to 21.328 billion euros while sales rose 9 percent to 20.201 billion.

The company said it would raise its dividend for 2006/07 to 1.60 euros per share from 1.45 euros per share a year ago.

"We have full confidence in the operational strength of our company," Loescher told a news conference.

The company made a net loss of 74 million euros in the quarter as it had about 1 billion euros' worth of tax expenses related to the carve-out of VDO automotive, which it sold to tire and car-parts maker Continental.

Siemens said it expected a positive gain from the VDO sale this fiscal year.

Siemens is strengthening its industrial, energy and healthcare businesses to capitalize on booming populations and an accompanying rush to improve infrastructure.

The company said it had largely finished an internal investigation into suspected bribery and corruption and had identified a total of 1.3 billion euros in suspect payments.

Siemens is still battling multiple corruption investigations around the world and was fined 200 million euros by a Munich court last month for illegal activities at its telecoms unit.

Loescher, an outsider charged with changing corporate culture at the 160-year-old Siemens, said about 140 employees had been dismissed for compliance violations.

Reaching Higher

Loescher raised the operating margin target for Siemens' healthcare business with immediate effect and said details of higher targets for the industrial and energy businesses would be announced in late January.

He also promised a cleaner management structure with a single CEO for each of the three new units and the elimination of a level of managers with no clear operational responsibility, subject to the agreement of the supervisory board this month.

Loescher said selling, general and administrative costs would be reduced by 10-20 percent as a proportion of sales by 2010 and its capital structure would continue to improve after Siemens' cash conversion rate improved to 1.83 in the quarter.

Siemens' quarterly operating profit margin of 9 percent was an improvement on the previous quarter's 7 percent but still well below the 15 percent rival General Electric (GE is the parent company of CNBC) delivered at its industrial and healthcare units last quarter.

Investors are betting Loescher will succeed in improving profitability, as Siemens shares trade at 23 times 2006/07 earnings but just 15 times expected 2007/08 earnings, according to Reuters Estimates. GE trades at a multiple of 18 times 2007 and 16 times 2008 earnings.