Thyssenkrupp's Shares Fall on Profit Warning -- WSJ
November 12 2018 - 3:02AM
Dow Jones News
By Ruth Bender
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 12, 2018).
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 shareholders 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 12, 2018 02:47 ET (07:47 GMT)
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