Siemens AG share price down, to cut 4 500 jobs as industrial profit falls

German engineering giant Siemens AG announced on Thursday another workforce reduction to help turn around its power and gas division and other underperforming businesses as second-quarter industrial profit dropped due to low oil prices and volatile economic conditions.

Siemens said it plans to cut about 4 500 jobs worldwide, roughly 1% of the global headcount, 2 200 of which in Germany, as it tries to cope with low demand and price erosion at its core gas turbines business, as well as aggressive competitors and regulatory changes. This comes just months after the German industrial group said it would slash 7 800 jobs worldwide, 3 300 of which in Germany, as part of its program to streamline administrative functions. Following labor negotiations, the number of layoffs in Germany was reduced to 2 900.

“With the initiation of these measures, the company’s structural reorganization has been completed for the most part,” said Joe Kaeser, President and CEO of Siemens AG.

The company reported a 5% drop in operating industrial profit to €1.66 billion in the second fiscal quarter after €98 million in severance costs, compared to analysts median projection for €1.78 billion. The industrial profit margin slid to 9.0% from 10.3% a year earlier. Excluding restructuring costs for job cuts, the margin was at 9.6%.

Orders jumped 16% to €20.75 billion from €17.86 billion a year earlier, bolstered by large domestic contracts at the companys rail business. On a comparable basis, orders rose 7%. Revenue jumped 8% to €18.05 billion from €16.70 billion a year ago, but adjusted for currency and portfolio effects, sales were flat.

Net income more than tripled in the second fiscal quarter to €3.91 billion from €1.15 billion in Q2 2014, however the jump was due to the sale of three assets – the stake in a household-appliances joint venture with Robert Bosch GmbH, the hearing-aid business and the hospital-information unit.

The company reaffirmed its full-year outlook for a gain of at least 15% in earnings per share, aided by the asset sales and a weaker euro, and a full-year profit margin in the industrial business of 10-11%. Revenue on an organic basis is expected to remain flat year-on-year.

“While the company has maintained full-year guidance, we struggle to see how the company will reach a 10-11 percent industrial margin,” analysts at Barclays said, cited by Reuters.

Profit at the groups power and gas business slid 34%, less than expected, to €392 million from €594 million a year earlier. Profit at the digital factory unit slid 13% to €355 million from €408 million during the comparable period in 2014, missing forecasts for €429 million. Performance at the mobility unit was almost flat, while energy management booked a €93-million profit compared to a loss a year earlier and the healthcare business saw profit drop 2% to €526 million.

Siemens said in the statement it continues with the restructuring of its chronically underperforming businesses, which last year generated 18% of sales and zero profit. It will concentrate on putting the businesses back on a sustainably profitable basis primarily through its own efforts, the group added.

The companys management has also faced pressure to justify the planned $7.6-billion acquisition of US oil-equipment provider Dresser-Rand, which was announced in September and is pending European Union approval. Investors have criticized the high offer price and the poor timing, which came during a major oil price slump.

Siemens AG traded 2.54% lower at €94.39 per share at 09:31 GMT in Frankfurt, marking a one-year drop of 1.51%. The German conglomerate is valued at €85.32 billion. According to the Financial Times, the 26 analysts offering 12-month price targets for Siemens AG have a median target of €100.00, with a high estimate of €135.00 and a low estimate of €87.00. The median estimate represents a 3.25% increase from the previous close of €96.85.