Outlook Cut

ThyssenKrupp's Reality Check

Heinrich Hiesinger CEO ThyssenKrupp source AP 54234890
ThyssenKrupp and its CEO Heinrich Hiesinger are feeling the impact of low steel prices.
  • Why it matters

    Why it matters

    ThyssenKrupp’s turnaround will take more time as global steel prices are not recovering as fast as many hoped.

  • Facts

    Facts

    • Steelmaker ThyssenKrupp expects an adjusted operating profit of €1.4 billion, or $1.6 billion, for its fiscal year 2015-16
    • The company also expects its net profit to remain at the level of its last fiscal year instead of a significant increase from last year.
    • As recently as last month, ThyssenKrupp had forecast an operating profit between €1.6 and €1.9 billion for its fiscal year 2015-16, which ends on October 31.
  • Audio

    Audio

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Steelmaker ThyssenKrupp issued a profit warning on Tuesday, cutting its full year operating earnings forecast by an average of 20 percent to €1.4 billion, or $1.6 billion. It also expected its net profit to remain at the level of its last fiscal year instead of a significant increase from last year.

As recently as last month, ThyssenKrupp had forecast an operating profit between €1.6 and €1.9 billion for its fiscal year 2015-16, which ends on October 31. The company made a net profit of €268 million in its 2014-15 fiscal year.

Shares of the Essen-based company fell as much as 5.6 percent in Frankfurt and were down 5 percent at €17.45 at 11.35 a.m. local time, touching a one-month low. The stock has dropped 26 percent over the past twelve months, compared with a 14.5-percent drop on the German blue-chip DAX Index.

Faced with overcapacity in the global steel market and cheap steel from China, Mr. Hiesinger is open to consolidation in Europe.

“The negative revision of the full year guidance has clearly produced negative headlines. Whether it is truly so bad remains to be seen,” said Ingo-Martin Schachel, a steel analyst at Commerzbank in Frankfurt.

Looking at the progress of different parts of ThyssenKrupp’s business, Mr. Schachel told Handelsblatt Global Edition that the situation was mixed. “Steel Americas is a specific asset and has not yet shown an improvement in the quarter, but the steel business in Europe has and its profitability is higher than that of ArcelorMittal,” he said.

Last week, the world’s largest steelmaker ArcelorMittal reported a net loss of €416 million for the first three months of 2016, citing low steel prices. However it left its full year guidance unchanged and said that the current recovery of steel prices would help improve its results in the rest of the year.

The price of hot rolled coil steel reached a low in January at around €315 per metric ton in northern Europe and traded at €402 on Tuesday. The product traded above €500 in early 2013.

 

131 ThyssenKrupp-WTB 2015

 

ThyssenKrupp has been restructuring its operations ever since Heinrich Hiesinger took the helm in January 2011. Now, faced with overcapacity in the global steel market and cheap steel from China, Mr. Hiesinger is open to consolidation in Europe.

The company, whose roots date back to 1811 when when Friedrich Krupp founded a steel casting factory, might exit its main steel business and focus on less volatile operations, such as making elevators, car parts and submarines. The steelmaker is in merger talks with three potential partners – Tata Steel, Salzgitter and ArcelorMittal – Handelsblatt learned last month.

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

The company reported a €45 million profit for the January-to-March period, its fiscal second quarter, unchanged from the level a year earlier. Its quarterly revenue dropped by 10 percent to €11 billion.

“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,” Mr. Hiesinger said.

 

Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author:  kreijger@handelsblatt.com

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