TKAMY Thyssenkrupp AG (PK)

By Ruth Bender 

BERLIN -- Shares in Thyssenkrupp AG tumbled Friday after the company issued its second profit warning in four months, highlighting the difficulties the conglomerate faces as it embarks on a comprehensive overhaul to boost returns.

The German industrial giant, which makes steel, elevators and auto components, cut its profit guidance for the year blaming legal provisions related to an investigation into alleged price-fixing in the steel industry.

Shares fell 11% -- their biggest drop in two years -- as the warning, coming after a troublesome year for the company, worried analysts that the group's problems were far from over.

Thyssenkrupp also cited quality issues at its automotive and industrial components business, lower-than-expected earnings at its elevator unit and shipping restrictions at its steel division for the weaker profit forecast.

"It is clearly disturbing," UBS analyst Carsten Riek wrote in a note to clients, citing the company's recent profit warnings. "The operational issues should have been recognized earlier."

The latest profit warning adds to pressure on Thyssenkrupp's new Chief Executive Guido Kerkhoff as he undertakes a major restructuring of the ailing company.

Pointing at declining profits, activist investors earlier this year pushed for a major overhaul of the company, saying its conglomerate structure was inefficient, costly and bureaucratic.

Calls were led by Swedish activist Cevian Capital AB, which is one of Thyssenkrupp's biggest shareholder with an 18% stake. Elliott Management Corp., another activist investor, also pushed for change.

In September, Thyssenkrupp announced it would split itself in two separately listed companies, with the aim of extracting more value from its vast array of activities with little-to-no overlap.

One company will house the group's materials operations, including steel, and the other the group's capital-goods businesses, which include the elevator and automotive components segments. Both companies will keep the name Thyssenkrupp.

Mr. Kerkhoff, the group's former finance chief, has been tasked with leading the process since taking the helm of the company in September after its last CEO left abruptly amid a clash over the company's strategy.

For its latest profits warning, Thyssenkrupp mostly blamed an ongoing cartel probe in Germany. The company had already disclosed it was the subject of an investigation into alleged cartel activity relating to the pricing of heavy plate and flat carbon steel products, but hadn't warned of any financial fallout. The company said new developments in the investigation prompted it to take out risk provisions.

"Looking at the financial situation of the company, a possible cartel fine would come at an inopportune time," DZ Bank said in a research note.

Germany's cartel office, the Bundeskartellamt, is currently conducting several probes into the steel sector. In July, the office fined six special steel companies for price-fixing and exchanging price-sensitive information, including an ArcelorMittal unit. A year ago, the office searched premises of seven companies as part of a probe into heavy plate and flat carbon steel products. The office declined to comment further on the probe mentioned by Thyssenkrupp.

Because of the provisions for any potential fines arising out of the probe, Thyssenkrupp said it now expects net profit of EUR100 million ($114.1 million) for 2018, lower than its previous estimate for net income to be "significantly better" than the 2017 result of EUR271 million.

Operational problems are also a headwind. Thyssenkrupp cut its outlook for adjusted earnings before interest and taxes to EUR1.6 billion after it had lowered it in July to EUR1.8 billion from an earlier target range of between EUR1.8 and EUR2 billion. When warning on profits in July, Thyssenkrupp had cited delays in the delivery of submarines to Turkey and problems in its building cement plant in Saudi Arabia.

--Nathan Allen contributed to this article.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

November 09, 2018 09:09 ET (14:09 GMT)

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