Kloeckner extends job cuts as profits slide

FRANKFURT Wed Nov 7, 2012 9:01am EST

FRANKFURT (Reuters) - German steel distributor Kloeckner & Co (KCOGn.DE), seeing no near-term respite from a sector slump and massive overcapacity, extended its job-cutting plans on Wednesday.

It said it would shut down about a fifth of its sites and shed a further 500 jobs, bringing the total to 1,800 or some 16 percent of its workforce.

"We do not see any positive impulses coming from the European economy," Chief Executive Gisbert Ruehl said after the company posted a near halving in third-quarter earnings before interest, tax, depreciation and amortization (EBITDA) to 19 million euros ($24.3 million).

That compared with an average estimate of 21.5 million euros in a Reuters poll of analysts.

The steel sector has been hit by a slowdown in demand for cars, appliances and new buildings. Though the global manufacturing downturn eased last month, there are no signs yet of relief in the euro zone.

Kloeckner's move comes after German steelmaker Salzgitter (SZGG.DE) and Austria's Voestalpine (VOES.VI) both cut their outlook this week, citing their inability to increase prices in the weak economic climate.

SHARES UP

Shares in Kloeckner were up 3.6 percent at 7.915 euros at 1227 GMT on hopes the restructuring would help lift profits.

Voestalpine said pressure had mounted on segments that had fared relatively well such as the auto, mechanical engineering and energy industries. A few market segments such as the aviation and farm machinery sectors remained stable.

"In the automotive sector it is not just the mass producers but the premium carmakers who are battling increasing weakness in demand," Chief Executive Wolfgang Eder told reporters.

He said the economic slump showed no signs of improving soon. "We assume there will be further deterioration of the economic environment in the months ahead," he said in Vienna.

Voestalpine shares fell 1.8 percent.

SHRINKING MARGINS

A slide in prices pushed Kloeckner's gross profit margin down to 17.2 percent, from 18.8 percent a year earlier, but it said it expected the restructuring programme to alleviate margin pressure gradually.

"The pick-up after the holidays in the European markets failed to materialize," BHF Bank analyst Hermann Reith said, adding that he expects margins to remain under pressure.

Ruehl said overcapacity in the sector was still immense and he did not expect any price increases in Europe in the near term.

Prices in the United States could rise in the first quarter of 2013, but that increase would not be sustainable, he said.

The company, which warehouses and distributes steel products, also buys metal from mills and processes it for smaller customers, mainly in construction and machinery sectors.

It expects its customers to continue destocking because of low prices, echoing comments made by the German steel association this week.

Kloeckner said that it now expects EBITDA of between 130 million euros and 140 million euros for 2012, excluding restructuring costs. After its second quarter it scrapped a previous outlook for operating profit to remain steady at last year's level of 217 million euros. ($1 = 0.7812 euros) (Additional reporting by Angelika Gruber in Vienna; Editing by Victoria Bryan and David Cowell)

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