(Adds new analyst comment, updates shares)
By Georgina Prodhan
FRANKFURT, Aug 3 (Reuters) - German electronics firm Epcos boosted earnings and sales in the three months to June, helped by strong demand and stable prices, but was cautious on Tuesday over the outlook for the rest of its fiscal year.
The company said it expected flat sales and earnings in the traditionally strong fourth quarter to the end of September compared to the previous three months. In that period, higher operating income was in line with analyst estimates.
New orders were up from last year but lower sequentially, although they provide little indication of sales in the September quarter, when most business takes place towards the end of the period.
"The fourth quarter is traditionally characterised by a slow start caused by the holidays and a final spurt as our customers ramp up production for Christmas business," Chief Executive Gerhard Pegam said in a statement.
"For the fourth quarter of fiscal 2004 now under way, Epcos expects sales and earnings at about the same high level as in Q3," it added.
Disappointed investors sent the stock 0.8 percent lower by 1148 GMT, making it one of the worst performers on Germany's TecDAX technology index , which rose 1.2 percent.
"Sales are more or less in line but the picture for the September quarter has darkened," analyst Andre Jaekel of ABN Amro said. "Pricing pressure has gone away, that's good news, but it's not that you see prices going up."
"They say June/July will be relatively slow and September will provide the big boost, but they don't know what September will bring because the quarter is extremely back-loaded," he added.
However, analyst Karsten Iltgen of WestLB said Epcos could beat its own forecasts by increasing sales this quarter. "Obviously they don't trust themselves to stick their neck out so far yet," he said.
Epcos's biggest rival, global market leader Murata of Japan, posted higher profits for its year to March but also gave cautious guidance as it saw demand rising more slowly than expected.
GROWTH IN ASIA, AMERICA
Epcos said sales growth in the June quarter had been highest in consumer electronics, and that mobile phone, automotive and industrial parts had also seen strong demand, while prices had been largely stable.
Sales came in just shy of estimates, rising 15 percent year on year and 2 percent from the previous quarter to 348 million euros ($420 million), while new orders rose 22 percent from the year-ago period to 331 million euros, but fell 14 percent sequentially.
Earnings before interest and tax (EBIT) were 19 million euros, up by 15 percent from the year-ago period and by more than a third sequentially.
Net income just missed forecasts at 14 million euros, seven times as high as a year ago and up more than 25 percent sequentially. The firm said tax reform in Austria had led to higher taxes.
Epcos said Asia and North America had accounted for most of its sales growth but that it had also increased revenue slightly in Germany and the rest of Europe.
The higher sales spanned all four of the company's businesses. Ferrites and inductors returned to profit in the quarter, while SAW, which accounts for a third of Epcos's business, posted the highest year-on-year growth.
Capacitors narrowed its losses in the quarter, boosted by Portuguese government grants of 8 million euros, but this was offset at the company by unexpectedly high charges of 7 million euros for one-offs including restructuring.
Epcos has ruthlessly cut costs to compete with rivals with lower cost bases in Asia and the United States, relocating most of its production from Europe to lower-wage regions, where it now employs around three quarters of its staff.
The company is due to hold a conference call for analysts at 1400 GMT. (Additional reporting by Hans Nagl in Munich)