TKAMY Thyssenkrupp AG (PK)

By Christopher Alessi 

FRANKFURT-- Thyssenkrupp AG on Tuesday lowered its guidance for the current fiscal year, citing the significant drop in global prices of materials such as steel in the first half, even as the German industrial conglomerate reported a 26% jump in net profit for the second quarter.

Thyssenkrupp now expects to reach adjusted earnings before interest and taxes of "at least" EUR1.4 billion ($1.6 billion) for fiscal 2016, compared with a prior estimate in a range of EUR1.6 billion to EUR1.9 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," Chief Executive Heinrich Hiesinger said in a statement.

But the company said it expects to achieve significant improvements at its materials businesses in the second half of the fiscal year due to the recovery in materials prices and cost-reduction measures.

Net profit for the three months ended March 31 was EUR61 million, compared with EUR48 million during the same period a year earlier, largely the result of fewer special items such as restructuring costs. However, that figure fell short of analysts' forecasts. Analysts had predicted a second-quarter net profit of EUR67 million, according to a recent poll conducted by The Wall Street Journal.

The company's closely watched adjusted EBIT plunged by 20%, to EUR326 million, held back by the materials businesses. Stronger earnings at the capital-goods business, including the elevator division, weren't enough to offset the weak performance at the steel and materials-services businesses, the company said.

Adjusted EBIT at the elevator business rose by 18%, to EUR186 million, helped by strong demand for new installations in China, the U.S. and South Korea.

Since taking the helm five years ago, Mr. Hiesinger has reshaped the company around its capital goods businesses--particularly the group's lucrative elevator division, which is one of the global top four. At the same time, he has sought to move the company away from its traditionally core steel making operations.

In 2014, Mr. Hiesinger sold the group's troubled Alabama steel plant and has indicated a desire to fully exit its steel operations in the Americas by selling its Brazilian steel plant when market conditions are favorable.

As recently as last month, Thyssenkrupp was in talks with India's Tata Steel Ltd. about combining their continental European steel operations amid global overcapacity in the industry, The Wall Street Journal reported at the time. Analysts widely expect that Thyssnenkrupp could announce a deal within the next year.

Quarterly sales dropped by 10%, to EUR9.85 billion, hurt by lower volumes and the drop in materials prices.

Thyssenkrupp also said that its net financial debt had increased by 4%, to EUR4.82 billion, while the loss of free cash flow deepened, dropping to negative EUR371 million.

The "net result turned out somewhat worse than expected by us and the market," according to Dick Schlamp, an analyst at Germany's DZ Bank. "The earnings decline was attributable in particular to the unsatisfying performance of the material-related businesses areas, which suffered from continued high import and price pressure," Mr. Schlamp wrote in a note on Tuesday.

The company's fiscal year runs from Oct. 1 to Sept. 30.

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

May 10, 2016 03:17 ET (07:17 GMT)

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