Siemens AG reported better-than- estimated earnings on lower power-business charges and rising health-care profits as Chief Executive Officer Peter Loescher seeks to mitigate the impact of underperforming acquisitions.

Net income from continuing operations at Europe’s largest engineering company slipped 1.4 percent to 1.3 billion euros ($1.7 billion) in the three months through December, it said in a statement today. The average estimate of 10 analysts surveyed by Bloomberg was for 1.18 billion euros. Revenue gained 1.5 percent to 18.1 billion euros.

Loescher needs to defend his strategic skills today when he faces thousands of investors at the annual shareholder meeting in Munich, where the company is based. The CEO, now on his second five-year term, has come under pressure after most deals that he supervised soured, and a push into more environmentally- friendly energy generation led to spiraling costs. Profitability at Siemens last year dropped back to the levels when Loescher started in 2007, prompting a new program to cut costs in November after the CEO acknowledged he had been too slow to react to falling demand.

“There was good profitability in the healthcare and energy sectors, but on the other hand the short-cycle segments in the industry sector were relatively weak both in terms of order intake and profitability,” Frankfurt-based Commerzbank analyst Ingo-Martin Schachel, who has a hold rating on Siemens, said by phone. “That’s clearly negative.”

Declining Orders

The stock declined 0.4 percent to 83.32 euros as of 9:06 a.m. in Frankfurt trading, valuing the company at 73.4 billion euros. Siemens rose 11 percent in 2012, while Germany’s benchmark DAX index gained 29 percent

Siemens’s order intake declined 3.3 percent to 19.1 billion euros in the fiscal first quarter. Loescher said today the European economy won’t support Siemens’ business this year.

“The mood in Europe calmed down in the second half of 2012, but economic output in the euro zone will most likely decline once again,” he said at a press conference today. “The economic forecasts for the United States are still very cautious. However, we believe that the economic recovery there could pick up speed.”

The euro-area economy is hobbled by a recession, and unemployment in the region reached a record 11.8 percent in November. The currency bloc fell into its second recession in four years in the third quarter and the European Central Bank expects the economy to shrink 0.3 percent this year. The euro region absorbs about 40 percent of German exports.

Solar Charges

Siemens said it will continue to slash costs to reach its target for full-year profit of between 4.5 billion euros and 5 billion euros on revenue below the 78.3 billion euros in 2012. The German company announced a 6 billion-euro cost-cutting effort, dubbed Siemens 2014, in November.

First-quarter earnings were boosted by lower project costs in the company’s power-transmission business, which booked charges of 28 million euros in the quarter for its offshore wind business, after 203 million euros a year earlier.

Siemens’ health-care operations are in the second year of an efficiency push, mainly in the diagnostics operations. Health-care earnings were also lifted by orders of more profitable products, the company said.

Energy Woes

The solar energy unit was put up for sale in October, two years after its founding through acquisitions including Archimede Solar Energy and Solel Solar Systems. Deteriorating prices for photovoltaic modules have made concentrated solar power less attractive, and the activities had been unprofitable since Siemens bundled the operations into a separate unit in 2011. The unit lost 150 million euros in the quarter.

Siemens’ energy units will contribute savings of 3.2 billion euros, improving procurement and project execution toward the goal for reducing costs by 6 billion euros by 2014, Siemens said in December. The plan also includes the disposal of parts of a water business and units offering parcel automation, airport logistics and airfreight.

First-quarter profit across the company’s four core business sectors increased 4.4 percent to 1.7 billion euros, driven by a 12 percent increase at the energy unit to 567 million euros and a 38 percent increase in the health-care business to 503 million euros. Profit from the industry unit slipped 10 percent to 500 million euros, while it fell 36 percent to 128 million euros in the infrastructure and cities sector.

Osram Vote

Siemens is one of the first major industrial companies to report earnings for the final three months of 2012, offering an insight into global demand with its products, which span trains, power turbines, medical scanners and factory automation gear.

Competitor General Electric Co., based in Fairfield, Connecticut, last week reported quarterly results that also topped analysts’ estimates. The company’s emerging-market expansion fueled the aviation and health-care divisions, which drove industrial performance and helped build a record $210 billion order backlog.

Siemens’ shareholders will vote later today on whether to back plans to spin off the Osram lighting unit into a standalone company. If approved, the move will see investors receive one Osram share for every 10 Siemens shares they own. Osram posted a profit of 79 million euros in the quarter, compared with 111 million last year. The parent company expects 200 million euros in costs relating to the spin off process.

Siemens’ equipment joint venture with Nokia Oyj, called Nokia Siemens Networks, has already reported better-than- expected results for the last three months of 2012, posting an operating profit of 13 percent to 15 percent of sales excluding some items.

(Source: Bloomberg)