Shares in German industrial giant Siemens (SIEGY 2.23%) were down by more than 6% at 11 a.m. ET this morning. The move comes after CFO Ralf Thomas's presentation at a Bank of America Industrials Conference warned of slower-than-expected orders growth at its key digital industries segment in its financial second quarter.
What Siemens's management said
The digital industries segment comprises Siemens's automation, motion control, and industrial software businesses. It's seen as its most exciting long-term growth business due to its role in helping companies automate production and digitize their manufacturing processes.
However, the industry is seeking near-term weakness this year due to a slowing global economy and a notable weakness in China. In addition, distributors are destocking after a period of aggressively building inventory in response to supply chain challenges that caused delivery delays. Siemens's U.S. rival Rockwell Automation (ROK 1.15%) has reported similar conditions.
Both Siemens and Rockwell should see a gradual improvement through 2024. Still, unfortunately, orders are set to decline by a low-teens percentage in the second quarter for Siemens in its digital industries segment, with revenue down by a mid-single-digit percentage -- a worse-than-expected result that's pushing profit margins to the low end of the segment's expected range of 17%-23%. In addition, Thomas conceded that the full-year digital industries revenue growth target of 0%-3% could be challenged.
Image source: Getty Images.
So is Siemens a buy?
On a more positive note, Thomas said the smart infrastructure (electrification, building, and electrical products) segment's revenue growth and profitability were tracking toward the high end of expectations in the second quarter.
The disappointing news calls into question the timing of a recovery in orders and revenue growth, not least in China and from export-led demand countries like Germany and Italy.
Still, it looks likely to be a push-out-of-order growth rather than any challenge to the need for automation and industrial software, and history suggests this could be an excellent opportunity to buy into an investment theme with legs.
