July 19, 2018 / 2:10 PM / in 10 months

UPDATE 1-Elevator maker Kone hit by China price pressure, raw materials

(Adds comments, background, M&A)

By Jussi Rosendahl

HELSINKI, July 19 (Reuters) - Elevator maker Kone reported on Thursday that its quarterly profits fell more than expected, but added that pressure on its margins would start to ease towards the end of the year, thanks to price increases in China.

The highly competitive industry, including Switzerland’s Schindler, Germany’s ThyssenKrupp and U.S. Otis, has struggled in the past years with falling installations in China, which is by far the world’s biggest elevator market.

Kone’s second-quarter adjusted operating profit fell 10.5 percent from a year ago to 300 million euros ($348 million), missing analysts’ average expectation of 316 million euros in a Reuters poll.

“Our adjusted EBIT margin continued to be burdened by the price pressure seen earlier in China, combined with higher raw material prices,” CEO Henrik Ehrnrooth told a news conference.

But he added that new orders grew in all regions and businesses, and that its price increases are starting to bear fruit.

“We are growing in China now although the market is flat... In the second quarter, we saw small growth in new equipment orders in unit terms, but clear growth in monetary terms.”

The company repeated its guidance of a full-year profit of 1.1-1.2 billion euros, compared to 1.23 billion in 2017. It is cutting jobs around the world with an aim to save about 100 million euros annually by 2020.

German daily Handelsblatt reported on Sunday that large shareholders of Kone and ThyssenKrupp have held talks on a potential merger of their elevator businesses.

Ehrnrooth declined to comment on the report, or possible M&A targets, but said Kone was interested in industry consolidation.

“There is room for consolidation in the industry... There are many alternatives to do it,” he said.

Analyst Erkki Vesola from Inderes Equity Research said he did not believe in any quick deal between the two companies.

“The elevator market has not grown for some years now... I wonder who would want (elevator) factories of someone like Thyssen. In Thyssen, Kone would be most of all interested in their service base,” he said.

Shares in the company fell 0.8 percent by 1343 GMT. ($1 = 0.8623 euros) (Reporting by Jussi Rosendahl, editing by Gwladys Fouche and Alexandra Hudson)

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