(Bloomberg) -- Siemens AG said strong orders from all markets are set to continue in coming months, helping the company combat mounting inflation and supply-chain problems that are weighing on returns.
The German industrial giant, reporting a quarterly net loss that missed expectations Thursday, said it’ll double down on efficiencies to offset the drag as well as passing on higher costs to customers.
“We see strong demand from our markets even going forward three to four quarters,” Chief Executive Officer Roland Busch said in an interview with Bloomberg Television. “With our price increases to customers, which we are moderately adapting, we can overcompensate the cost increases from our suppliers.”
The shares fell 1.7% at 9:30 a.m. in Frankfurt trading, taking losses this year to almost 30%.
Manufacturers like Siemens have been fairly immune so far to an increasingly dim outlook marked by record inflation and slowing growth as well as the war in Ukraine. Supply-chain shortages, led by the chip crunch that’s now in its third year, have pushed order books to record levels and companies expect to take months to work down pent-up demand. Also Thursday, Daimler Truck Holding AG said it’ll struggle to fill truck orders for the rest of the year.
At Siemens, orders have reached a record high of 99 billion euros ($102 billion) following strong growth during the quarter through June. Even so, there are signs of normalization, the company said.
In the key Digital Industries division, which makes factory-automation software and other labor-saving services, profitability during the third quarter was held back by semiconductor shortages and higher expenses for cloud-based activities, Siemens said. Future business will be “clearly influenced by price inflation,” Busch said in speech notes. The company expects to start working down its order book starting in fiscal 2023.
The prediction echoes BMW AG’s view that improvements in the availability of semiconductors will help ease supply chain pressure allowing production to ramp up.
Quarterly orders at the Smart infrastructure unit climbed by 26%, although revenues in China declined due to coronavirus lockdowns. Both the Digital Industries and Smart Infrastructure units are central to Siemens push into higher-margin software offerings.
On Thursday, Siemens cut its expected increase of earnings per share to as much as 5.73 euros, down from as much as 9.10 euros because of impairment charges. Siemens in June wrote down the value of its stake in Siemens Energy AG by 2.7 billion euros following the turbine maker’s repeated profit warnings. On Thursday, it doubled impairments related to its exit from Russia to 1.2 billion euros.
Further writedowns on Siemens’s business in Russia are possible in relation to its leasing business in the country, in the region of a small- to mid-three-digit million euro amount.
While faced with a complex economic environment marked by sanctions on Russia, high inflation and effects of the pandemic, the company said it has avoided “larger disruptions” during the quarter.
Siemens is still in the process of revamping its business toward higher-margin, software-driven product lines. The company has sold off most of the smaller divisions destined for divestment and is shifting focus to areas with higher growth potential. In recent weeks, it has bought US software firm Brightly for $1.6 billion, started a new digital business platform and bought a minority stake in Volkswagen AG’s electric-car charging subsidiary Electrify America.
Siemens’ Mobility division, which makes trains, won orders of 2.8 billion euros. Returns fell because of the exit from Russia, and the company cut its profit margin forecast to as much as 8.5%, down from as much as 10.5%.
Profit from industrial business rose to 2.9 billion euros with returns of 17% slightly below analyst expectations.
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