France\’s Schneider Electric sees growth slowing in second half

French electrical equipment maker Schneider Electric raised its 2018 forecasts on Thursday, but its shares fell as first-half net income missed expectations and its targets pointed to slower growth in the second half.

The Schneider Electric said it now expects organic growth in adjusted earnings before interest, tax and amortisation (EBITA) of between 7 and 9 percent for the full year, up from “around 7 percent” previously, while it raised the full-year organic sales growth range to 5 to 6 percent from 3 to 5 percent.

However, Schneider Electric upgraded full-year targets lagged the company’s performance in the first half, when it reported 11.1 percent organic growth in adjusted EBITA and 7 percent organic growth in revenues.

Organic growth excludes the impact of a stronger euro on the company’s results.

“We are seeing inflationary pressures, tensions in the supply chain, customs fees,” Emmanuel Babeau, Schneider’s chief financial officer, told Reuters.

“Schneider Electric performance in the first half of the year allowed us to absorb these headwinds, because we must not think that everything is rosy in this landscape. We don’t say that it will be a walk in the park,” he added.

Schneider Electric shares were down 2.7 percent at 1025 GMT.

The Schneider Electric did not change the upper limit of its adjusted EBITA margin outlook, now expected to grow by 30 to 50 basis points over the full year, a slight adjustment from the 20 to 50 basis points guided previously.

Analysts at Berenberg said in a note that the upgraded outlook, being “still conservative,” was already reflected in the market consensus.

Jefferies said fiscal year 2018 guidance “was raised modestly with implied slower growth in H2.”

The Schneider Electric, which recently acquired Britain’s Aveva, posted adjusted EBITA of 1.77 billion euros ($2.08 billion) for the January-June period on revenues of 12.32 billion euros, while its net income came in at 1.02 billion euros.

Although it crossed the 1 billion euro threshold for the first time in the company’s history, net income missed market expectations, hit by restructuring charges and amortisation and depreciation of intangibles linked to acquisitions.

Analysts polled for Reuters had expected an average organic sales growth of 6.24 percent to 12.31 billion euros with adjusted EBITA of 1.78 billion and net income growing to 1.11 billion euros.

According to analysts at Berenberg, second-quarter sales of 6.52 billion euros were also slowed by higher currency headwinds.

Schneider Electric generates roughly three-quarters of its revenue outside the euro zone.

While the exchange rate impact is likely to ease in the second half, the company expects the first extra costs linked to higher U.S. tariffs which could reach 20 million euros.

The Asia Pacific region, which accounts for roughly 30 percent of revenues, posted double-digit growth as demand in China remained strong and the country’s residential markets continued to grow.

The Schneider Electric medium voltage business in the energy management division, a drag for the past couple of years, returned to small positive growth.

About Schneider Electric

Schneider Electric is leading the Digital Transformation of Energy Management and Automation in Homes, Buildings, Data Centers, Infrastructure and Industries. With global presence in over 100 countries, Schneider is the undisputable leader in Power Management – Medium Voltage, Low Voltage and Secure Power, and in Automation Systems. We provide integrated efficiency solutions, combining energy, automation and software. In our global Ecosystem, we collaborate with the largest Partner, Integrator and Developer Community on our Open Platform to deliver real-time control and operational efficiency. We believe that great people and partners make Schneider a great company and that our commitment to Innovation, Diversity and Sustainability ensures that Life Is On everywhere, for everyone and at every moment.

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