UPDATE 3-Germany's ThyssenKrupp nears first net profit in three years

Thu Aug 14, 2014 7:26am EDT

* Expects 2013/14 net earnings at breakeven to slightly positive

* Now sees 2013/14 adjusted EBIT doubling

* Q3 adjusted EBIT 398 mln euros vs 357 mln forecast

* Shares up 1.2 percent, outperform German blue-chips (Recasts, adds analyst comment, details)

FRANKFURT, Aug 14 (Reuters) - German steel and industrial group ThyssenKrupp said it could make its first net profit in three years, as Chief Executive Heinrich Hiesinger's recovery strategy begins to pay off.

ThyssenKrupp on Thursday raised the outlook for its financial year ending in September to "breakeven to slightly positive net income," after a turnaround at its steel mill in Brazil, cost cuts and demand for elevators and chemicals plants bolstered third-quarter earnings.

Hiesinger has been trying to turn ThyssenKrupp around after a slump in the global steel sector and a failed foray into the Americas caused losses and prevented the group paying shareholders a dividend for two years in a row.

He has cut costs and sold non-core businesses to reduce the company's exposure to the volatile steel sector and close a gap with more profitable industrial peers.

Commerzbank analyst Ingo-Martin Schachel said the new profit outlook was "a psychologically important milestone" and stuck with his "buy" recommendation on ThyssenKrupp's stock.

Its shares were 1.2 percent higher on Thursday afternoon, outperforming Germany's blue-chip DAX index, which was up 0.5 percent.

ThyssenKrupp's previous forecast was for a significant improvement in earnings after posting a net loss of 1.5 billion euros ($2 billion) in 2013.

ThyssenKrupp generates more than 70 percent of sales from industrial businesses making products such as car parts, elevators, submarines and fertiliser plants, up from less than 60 percent when Hiesinger took the helm more than three years ago. The rest still comes from its steel businesses.

ThyssenKrupp also raised its outlook for 2014 adjusted earnings before interest and tax (EBIT), saying it expects the figure to double this year from 586 million euros in 2012/2013, which would put it just below analysts' average forecast of 1.18 billion.

RELIEF IN BRAZIL

ThyssenKrupp's improved outlook comes after a series of frustrating setbacks for Hiesinger. The company's deteriorating finances forced him to ask shareholders for cash late last year, major deals have only been partially successful and compliance issues emerged that were costly and embarrassing.

He tried to sell ThyssenKrupp's Steel Americas business but was only able to find a buyer for half of it - a processing plant in the U.S. state of Alabama - leaving it with a loss-making mill in Brazil.

In ThyssenKrupp's third quarter ended June, however, the Brazilian plant unexpectedly returned to underlying operating profit, helping the group nearly triple its adjusted EBIT to 398 million euros, beating analysts' average forecast of 357 million.

The results showed that restructuring in Brazil was making progress, which could eventually allow ThyssenKrupp to make another attempt to sell the plant.

Group earnings were also boosted by a jump in core earnings at the European steel business - where ThyssenKrupp is cutting more than 2,000 jobs - restructuring at the elevators business and demand for fertiliser plants.

There was little support from markets, where rolled steel prices fell further and recovery is expected to be slow and fragile. European demand is still below pre-crisis levels, and quarterly sales at ThyssenKrupp's European steel business dropped 13 percent on low prices as well as disposals.

The businesses that make elevators and factories, which together accounted for just over 25 percent of group sales in the third quarter, are ThyssenKrupp's most profitable, with an adjusted EBIT margin of 12 percent each.

"We are on track, net profits are recovering," finance chief Guido Kerkhoff said on Thursday. But he said turnaround efforts needed to continue and the next goal would be to reach positive free cash flow.

The stock has gained about 20 percent so far this year as the company slowly recovers, but it is still down almost 30 percent since Hiesinger took over in 2011.

($1 = 0.7483 euro) (Reporting by Maria Sheahan; Editing by Erica Billingham)