It's one thing to get a modestly sized company back on its feet and heading in the right direction. Siemens (NYSE:SI), however, is no modestly sized company. This European cousin to General Electric (NYSE:GE) is a behemoth in its own right, and getting the company back on track will be a considerable challenge for its relatively new CEO, Klaus Kleinfeld.
The company's fourth-quarter results are a microcosm of the challenges ahead. Sales were up 13%, and orders were up 16% -- both respectable numbers for a company with nearly $26 billion in quarterly revenue. Profitability was a mess, though, as income from continuing operations dropped by about a third. The cash flow picture was a bit more encouraging, though. Operating cash flow for the quarter was up almost one-third, though full-year results were down about 11%.
Although things are starting to get better at some units -- automation, medical, and power generation seem to be doing pretty well -- communications and business services are still the "problem children" of the company, as management put it. The company's promising-sounding plans to address its woes, including investing in innovation, cost-cutting, and headcount reductions, are all more easily said than done.
Investors must also remember that despite its global status, Siemens still gets almost two-thirds of its revenue from Europe, and about one-third from Germany alone. The macroeconomic environment in Western Europe is looking a little shakier these days, and there is ongoing political uncertainty in Germany regarding the composition of the government and its agenda regarding the economy and big business.
Competition won't help matters, either. Fellow European ABB (NYSE:ABB) has notions of turning around its business as well, so Siemens should expect a fierce rival in the automation and power markets. It's also jockeying with Hitachi (NYSE:HIT), GE, Honeywell (NYSE:HON), Emerson (NYSE:EMR), Tyco (NYSE:TYC), and Philips in one or more of its various business segments.
I'm a sucker for a good turnaround story, and I think Kleinfeld is just the sort of person Siemens needs at the helm. Still, no one should assume that the company can deliver low- to mid-teens growth for the next few years. If the turnaround goes as planned, investors should be rewarded, but there are likely to be bumps and setbacks along the road.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
