Siemens Beats on Higher Revenues

| About: Siemens AG (SIEGY)

Siemens AG (SI) reported earnings per share from continuing operations of €1.63 ($2.07) for the third quarter of 2010 on revenues of €19.17 billion ($24.35 billion). The corresponding Zacks Consensus Estimates for the quarter were $1.56 and $23.14 billion, respectively.

Orders received in the quarter were €20.8 billion ($26.51 billion) and were up 22% from the prior-year quarter. The cumulative backlog for the quarter stood at €89 billion ($113 billion). The combined book-to-bill ratio for the sectors was 1.10.

Industry Sector improved its third quarter profit, revenue and orders compared with the prior-year period. Industry Automation was the sector’s highest profit contributor, partly due to economies of scale and significantly higher revenues. The division improved its business mix with more higher-margin products. Third-quarter profit at Drive Technologies increased 28% year over year. Robust demand for OSRAM’s LEDs and automotive solutions resulted in a 27% rise in third-quarter revenues at the division. Revenues at Industry Solutions declined 6% year over year while Mobility increased its profit on flat revenues.

Energy Sector generated a strong profit of €925 million ($1.2 billion) in the third quarter. Fossil Power Generation recorded a profit of €379 million ($481 million), an increase of 9% compared with the year-ago quarter. Renewable Energy, Oil & Gas, Power Transmission and Power Distribution reported increased profits in the most recent quarter.

The Healthcare Sector showed robust growth in profit, revenue and orders in a more conducive market environment. Imaging & IT reported strong profit growth and increases in revenue and orders compared with the corresponding prior-year quarter. Workflow & Solutions returned to profit compared with a loss in the year-ago period. Revenues increase at Diagnostics was 8% year over year and resulted from Americas, Asia, Australia, including rapid growth in Brazil and China.

Total sectors profit reached a new high of €2.331 billion ($2.96 billion) in the third quarter, including profit increases in all three sectors compared with the prior-year period. Income from continuing operations for the third quarter grew 18% year over year, to €1.44 billion ($1.82 billion).

Free cash flow from continuing operations was supported by a strong increase in total sectors profit compared to the prior-year quarter and positive changes in net working capital. Free cash flow at the sector level climbed to €2.86 billion ($3.64 billion) in the third quarter, taking free cash flow from continuing operations up to €2.14 billion ($2.72 billion).

The estimated deficit of Siemens' principal pension plans assets compared with liabilities as of June 30, 2010, amounted to approximately €6.1 billion ($7.75 billion), compared with a deficit of €4.0 billion at the end of fiscal 2009. This is due to an increase in defined benefit obligation as well as lower returns on plan assets.

We currently have a Neutral recommendation on Siemens AG.