Investors Punish ThyssenKrupp for Results Confusion
German industrial group ThyssenKrupp on Wednesday posted a first-quarter pretax profit drop in line with its preliminary guidance but investors punished the company for confusion over its
Shares fell nearly 5 percent as the group booked additional one-off costs for construction of its planned steel mills in Brazil and the United States, dragging the group's reported pretax profit down to just 646 million euros ($939 million).
"A figure of 700 million is mentioned at the annual general meeting and now they come out with a pretax result of 646 million. We both know what kind of an effect that's going to have when you do that in a such a nervous market," said one analyst who declined to be named.
The stock was closed 3.5 percent lower at 33.79 euros, making it the worst performer on the German blue-chip index.
ThyssenKrupp's profit indication given at the AGM on Jan. 18 referred to pretax before major one-off items, so once these charges were stripped out group earnings amounted to 715 million euros versus 1.06 billion euros a year ago.
It has estimated it would incur 165 million in extraordinary costs for the two steel mills alone over the course of the fiscal year to end-September, of which 69 million was already booked in the first quarter.
The group's need for huge investments and ongoing restructuring in areas such as Automotive will put some pressure on the share price, UniCredit's Christian Obst said.
"We would prefer Salzgitter and Kloeckner who will benefit most from rising steel prices in Europe and the U.S.," he told clients in a note on Wednesday.
With the market focused firmly on what at first sight looked to be a disappointing headline number, the group's confirmed full-year targets and bullish outlook for its carbon and stainless steel businesses were drowned out.
"For our Steel segment we expect 2008 to be another good steel year. The signs for this on the market have been increasing recently," Chief Executive Ekkehard Schulz said.
"We also expect continued lively demand and a significant improvement in prices in the stainless segment," he continued, after reiterating the 2007/08 forecast for earnings before tax and major one-off items of over 3 billion euros.
Although Stainless swung to a quarterly pretax loss of 45 million euros from a profit of 325 million as capacity remained underutilised and base prices fell dramatically, it foresaw a return to profit this quarter after two straight losses.
Resurgent demand from service centres helped boost order intake 12 percent to 2.2 billion euros as order volume gained 33 percent for cold-rolled and 37 percent for hot-rolled coil.
Pretax profit at its core Steel division fell 11.5 percent to 353 million euros after lower profit contributions from its Industry and Auto business units combined with project costs for its planned Brazilian slab mill to weigh on results.
ThyssenKrupp said it still expects sales growth in the coming year will have a positive impact on profit and confirmed its mid- and long-range targets that see earnings per share rising to 6.00-6.60 euros in fiscal 2011/12.