Thyssen Krupp, Getty Images
A worker tends to steel production at ThyssenKrupps Duisberg plant

ThyssenKrupp Drops as Forecast Cut Amid Steel-Industry Glut

May 10, 2016
Adjusted earnings for the steelmaker are down 20%, but is the industry actually entering a much-needed recovery period?

ThyssenKrupp AG, Germany’s largest steelmaker, had the biggest decline among the nation’s 30 top stocks after cutting its profit forecast as the industry grapples with a glut resulting from record Chinese exports.

Full-year earnings will be a “minimum” 1.4 billion euros ($1.59 billion), the Essen-based company said Tuesday in a statement. That compares with a previous forecast of 1.6 billion to 1.9 billion euros ($1.82 billion to $2.16 billion). Adjusted earnings before interest and taxes in the three months through March 31 fell 20% from a year earlier to 326 million euros $371.36 million), beating the 295.6 million-euro ($336.73 million) average of 10 analysts’ estimates compiled by Bloomberg.

CEO Heinrich Hiesinger, who took the role in 2011 amid a bribery scandal and failed expansion in the Americas, aims to turn ThyssenKrupp into a more diversified industrial group. He wants adjusted annual EBIT from the company, which gets almost half of annual profit from its elevator unit, to climb to at least 2 billion euros ($2.28 billion) to help cut debt, pay dividends and regain an investment-grade credit rating. Producers have been hit by cheap Chinese steel, which undercut European and U.S. prices.

“I was a bit surprised by the profit warning because steel prices have recovered significantly since mid-February,” Sven Diermeier, an analyst at Independent Research GmbH, said by phone from Frankfurt.

Fiscal second-quarter net income rose 27% from a year earlier to 61 million euros ($69.49 million), while sales declined 10%, the company said. Negative free cash flow before mergers and acquisitions widened 12-fold to 365 million euros ($415.78 million).

“The overall performance of the group continues to be overshadowed by the extremely difficult conditions in the materials markets,” the company said in the statement.

The shares dropped as much as 4% to the lowest since March 30 and were 3.8% lower this morning in Frankfurt, making them the worst performers on Germany’s 30-member Dax Index.

For the 12 months through September, ThyssenKrupp expects net income to be unchanged from a year earlier, compared with previous forecast for a “clear increase.” The company also sees free cash flow before mergers and acquisitions in a range from break-even to a negative figure in the low hundreds of millions of euros. This compares with a previous forecast for this to be unchanged from 115 million euros ($131.00 million) a year earlier.

“While we are now seeing a recovery in material prices, it is coming later than we originally expected and from a lower level and will also be reflected in our figures with a time lag,” Hiesinger said in the statement.

The cut forecast “questions whether ThyssenKrupp is able to reach its 2 billion euros adjusted EBIT target and a sustainably positive free cash flow before M&A in the current structure which is the basic issue,” Christian Obst, an analyst at Baader-Helvea Equity Research, said by phone from Unterschleissheim near Munich.

Second-quarter adjusted EBIT at the company’s European steel business slipped 42%. Steel Americas, the only unit to post an adjusted loss before interest and taxes for the last fiscal year, widened its quarterly loss to 65 million euros ($74.04 million).

Steel prices in Europe reached the lowest in at least nine years in February, according to Metal Bulletin Ltd. Prices have since rebounded and ArcelorMittal, the world’s biggest producer, last week said it sees a broad recovery in the global steel market.

By Tino Andresen

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Licensed content from Bloomberg, copyright 2016.

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