UPDATE 2-Voestalpine sees economic upturn helping it hit profit goals

Wed Nov 6, 2013 4:45am EST

Related Topics

* FY outlook maintained for stable operating and core profit

* Q2 EBIT down 15 pct to 177 mln eur vs Reuters poll avg 195 mln eur

* Shares fall 1.7 percent (Adds details, shares, analyst comment)

By Georgina Prodhan

VIENNA, Nov 6 (Reuters) - Steelmaker Voestalpine said it was counting on an economic upturn to help it reach its full-year profit goals and offset an unexpectedly weak second quarter marked by subdued demand.

The Austrian company missed analysts' forecasts for operating and core earnings in the quarter to end-September but said it expected a improvement in the second half thanks to growing momentum in Europe, China and North America.

Voestalpine - which has escaped the worst of a steel industry slump by focusing on specialised and high-technology products - said its biggest division, Steel, had suffered from weak demand, especially in Europe, and lower sales prices.

The division, which accounts for about a third of its revenue, supplies regular steel for the automotive, home appliance and building industries.

Special Steel, which accounts for about a quarter of sales and makes steel for tools, oil and gas exploration and turbine blades, was also hurt by subdued demand, the company said on Wednesday.

"The second quarter was marked by weaker revenues and profits in the individual business segments that had not been foreseen at the beginning of the summer," said Voestalpine, whose current fiscal year ends in March 2014.

However it stuck to its full-year outlook for core and operating profit at close to the last fiscal year's levels.

"The prospects of growing global economic momentum in the course of 2014 seem to be sound," it said citing successful budget restructuring in some European countries, stabilisation of growth in China and an upturn in North America.

Shares in Voestalpine had slipped 1.7 percent to 35.11 euros ($47.31) by 0941 GMT, underperforming the European basic resources index, which was flat.

The declines in Steel and Special Steel were partly offset by stronger results in the higher-tech Metal Engineering and Metal Forming divisions.

"2Q13/14 showed the strength of the Voestalpine business model, despite a lower than expected operating profit," analyst Christian Obst of Baader Bank wrote in a note.

EXPANSION

Voestalpine has embarked on an ambitious programme of expansion outside Europe to combat weak demand on its home continent as austerity measures and low economic growth hurt its key customers in the autos and construction industries.

Its gearing ratio, important as it ramps up investments, was 46.7 percent as of the end of September, down from 51.0 percent a year earlier.

ArcelorMittal, the world's largest steelmaker, cut its 2013 guidance in August on weaker-than-expected demand in Europe and the United States, but is expected to report higher third-quarter profits on Thursday.

German steelmaker Salzgitter, which has slashed its full-year outlook twice this year on a drop in demand for cars, appliances and new buildings, is due to report next week.

Voestalpine's earnings before interest, tax, depreciation and amortisation (EBITDA) fell 9 percent to 320 million euros ($431 million) in the quarter to end-September, missing the lowest estimate in a Reuters poll.

EBIT fell 15 percent to 177 million euros, hurt by a one-off charge of 10 million euros for the early termination of an unfavourable customer relationship in the Steel division, and also missing all the Reuters poll estimates.

Voestalpine reiterated, however, it expected full-year EBITDA and EBIT close to last year's levels, at around 1.4 billion euros and 850 million euros respectively. ($1 = 0.7421 euros) (Editing by Michael Shields and Pravin Char)

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