Siemens Profit Beats as Software Makes Up for Industrials

(Bloomberg) -- Siemens AG's profit rose 8% in the third quarter as Europe's largest engineering company dealt with the coronavirus crisis better than expected.

Adjusted earnings before interest, taxes and amortization from its core industrial business climbed to 1.8 billion euros ($2.1 billion), bolstered by cost savings, China's recovery and a one-time reevaluation at its software business, Siemens said Thursday. That beat analysts' average estimate of 1.2 billion euros.

Siemens endured the Covid-19 crisis better than some of its car-industry and industrial clients that faced historic slowdowns partly because it was able to keep factories running virtually uninterrupted. The Munich-based company stuck to its reduced full-year outlook for a moderate decline in revenue and said it couldn't make a reliable profit forecast because of uncertainties related to the pandemic.

The strong results included an “impressive” performance from the software business, Jefferies analyst Simon Toennessen said in an emailed note. Shares rose as much as 4% in early Frankfurt trading.

Siemens's earnings round out a tough period for industrial companies. General Electric Co.'s orders in the second quarter were hit hard, though most of the trouble stems from the company's aviation business, which Siemens does not share. ABB's second-quarter earnings and sales also came in higher than expected, as the Swiss industrial giant was helped by a strong rebound in China.

Train Order

Siemens's group sales declined 5% but still came in better than expected after growth at its mobility division, which secured deals including a 1.1 billion-euro order from German railway operator Deutsche Bahn AG.

A 62% surge in profit at the software business -- bolstered by a raised valuation of a stake in U.S. software developer Bentley Systems Inc. -- countered earnings declines in other areas.

Once Chief Executive Officer Joe Kaeser finishes his tenure next year, he will leave Siemens a transformed company that bears little resemblance to the one he took over in 2013. The engineering giant is spinning off its energy activities into a firm named Siemens Energy AG. The new company, with almost 29 billion euros in annual revenue, is scheduled to begin trading at the end of next month.

Siemens picked advisers for another potential spinoff of its Flender mechanical-drive business, a deal that could value the unit at more than 1.5 billion euros, people familiar with the matter told Bloomberg News on Wednesday. The business is also drawing interest from some private equity firms, which could lead to a sale, the people said.

Kaeser confirmed the story in an interview with Bloomberg Television on Thursday, saying Siemens will present the spinoff plan to shareholders at its annual general meeting in February.

“Whoever believes that they have got a better idea for the customers, the employees and the shareholders -- I'd be happy to listen,” he said.

What's left of Siemens will focus on factory automation and software, along with a unit that makes trains. Chief Technical Officer Roland Busch, who will succeed Kaeser, already oversees much of the day-to-day responsibilities for those divisions.

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