Siemens reported first-quarter earnings of EUR 1.40 per share, a 9% decline from the same quarter in the prior year. While revenue grew just over 1% in the quarter, the change was solely due to foreign exchange translation. Additionally, the company drove 40 basis points of margin expansion in the quarter, driven by strength in the energy segment (up 120 basis points to 9.1%) and health care (up 390 basis points to 15.5%), offset by softness in the industry segment and infrastructure and cities segment.
The improvement in operating margins helps to validate management’s recent attention to cost structure, and we anticipate improving margins over the next few quarters as the company continues to reduce costs and move out of noncore businesses. We continue to think Siemens’s ability to integrate technology across divisions contributes to its competitive advantage, allowing the company to deliver new products to the market at a cost lower than pure-play competitors.
Capital allocation continues to be a critical factor for Siemens going forward. The company ended the first quarter with EUR 7.8 billion on the balance sheet and is reportedly evaluating the disposition of its hearing aid business. Siemens recently announced the acquisition of Invensys’ rail signaling business which should bolster Siemens’ mobility as well as automation segments. While the company has shied away from large acquisitions in the last few years, we think the firm could make meaningful additions to the portfolio given current cash on hand and operating cash flow potential.
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