German industrial conglomerate Siemens raised its profit outlook on the back of cost cuts and higher demand from factories that are cranking up production amidst an economic rebound.
Europe's biggest engineering group said on Thursday it expected total sectors profit -- operating profit of all three core businesses -- to top 7.5 billion euros ($9.99 billion) for the year to September 2010 versus 7.47 billion the year earlier.
Lightbulbs, industrial automation systems and other products with short manufacturing lead times bore the brunt of the recession last year but have now limped back to growth.
The German economy is picking up steam and the Gfk market research group said consumer morale is likely to rise to a six-month high in May amid growing optimism about the economic situation.
A sharper-than-expected tick-up in activity in the euro zone's manufacturing and service sectors suggests the economic recovery is taking hold and becoming more broad based, with the manufacturing sector growth boosted by an expansion in Germany, a Markit survey showed last week.
Siemens' range of products from turbines and fast trains to hearing aids and lightbulbs compete with General Electric , Philips , Schneider Electric and ABB and making Siemens a bellwether of the euro zone's largest economy.
Rivals have also published positive results, helped by a strong recovery among original equipment makers as well as building and infrastructure investment in China and other emerging markets.
Schneider Electric reported a forecast-beating 2.3 percent rise in first-quarter sales and left its outlook for 2010 unchanged, forecasting an EBITA margin of around 14 percent before restructuring costs.
We are profiting in particular from measures we initiated early on to strengthen our competitiveness, Siemens Chief Executive Peter Loescher said, referring to cost cuts in sales and administration launched in 2008 months before the recession.
Last year, Siemens completed those cost cuts and began bundling procurement to source more materials from low-cost countries and buy more in bulk. Analysts estimate the supply chain initiative could buoy earnings by 1.3-1.8 billion euros.
Analysts have said the original operating profit forecast range of 6.0-6.5 billion euros before any restructuring costs was extremely conservative and based on significant decline in selling prices, an assumption that has not materialized so far.
Chief Finance Officer Joe Kaeser said on Thursday the pricing pressure was not as bad as first thought, particularly because of the dollar appreciation against the euro.
By 0823 GMT shares Siemens shares were up nearly 1 percent at 72.67 euros while the blue-chip DAX index <.GDAX> was up 0.3 percent.
Most analysts had predicted the world's biggest producer of industrial robotics would lift its guidance after it had stunned the markets in January with strong fiscal first-quarter results.
Siemens once more delivered sound order execution on the existing order backlog, said analyst Karsten Oblinger of DZ Bank.
While the late cyclical energy business is still suffering from lower order activities, parts of the industrial business ...are recovering, he added.
Siemens said revenue trends stabilized in the second quarter to March, partly cushioned by strong order backlogs in a number of infrastructure businesses worldwide.
Loescher told Reuters Insider TV the company has gained roughly 3 billion euros from economic stimulus programs in various countries and told CNBC that turbulences in countries such as Greece have really no significance for Siemens.
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(Additional reporting by Jens Hack; Editing by David Cowell)