January 31, 2018 / 12:14 PM / in 5 months

REFILE-UPDATE 1-Outokumpu predicts profit hit from raw material costs, weak dollar

(Refiles to add dropped word “steel” ahead of industry, paragraph 3)

Jan 31 (Reuters) - Outokumpu expects rising raw material costs, a weaker U.S. dollar and lower ferrochrome prices to hit its first quarter profit, the Finnish stainless steel maker said on Wednesday, wiping out this year’s gain in its share price.

Shares in Outokumpu fell by as much as 13.4 percent, putting them on track for their biggest single-day percentage decline since June 2016. Spain’s Acerinox which competes with it saw its shares drop by 2 percent.

Steel industry leader ArcelorMittal SA on Wednesday reported fourth quarter EBITDA above analysts estimates and gave an upbeat assessment of the steel market in 2018.

Outokumpu’s profit warning comes on top of a significantly weaker-than-expected fourth-quarter profit.

Its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the October-December period fell by 16 percent to 82 million euros ($102 million), well below the 131 million euros forecast by analysts.

The company expects current quarter underlying EBITDA to grow sequentially.

“A key focus for today’s conference call will be to understand just how much sequential earnings growth mgmt (management) sees as realistic,” Jefferies analysts said, adding that the market expects double (165 million euros) of what was reported in the fourth quarter.

Fourth-quarter earnings came in below the lower end of expectations as maintenance costs weighed on deliveries in Europe and production issues in the Americas spilled over from the previous quarter.

Outokumpu has recently recovered from a long slump that followed its unsuccessful acquisition of Thyssenkrupp’s Inoxum unit in 2012 and a string of troubles at its operations in the United States.

But its problems look persistent, said analyst Petri Gostowski from Inderes Equity Research.

“It has taken a very long for them to fix problems at the Americas unit. It raises a lot of questions that the CEO must answer... the market is fine, there should be no problems in the demand side,” he said, holding an “accumulate” rating on the stock. “Also, in Europe, their maintenance shutdowns seem to be have taken longer than expected.”

“We note that this commentary on cost pressures seems to stand out versus peers who have generally stated their confidence in being able to pass on to customers higher input costs via price hikes,” Jefferies analysts said.

Outokumpu reported a 6 percent fall in stainless steel deliveries, but said it expects the first quarter to improve due to healthy demand both in Europe and the U.S., as well as a seasonally strong market.

Separately, Outokumpu proposed Kari Jordan as its new board chairman, adding that Jorma Ollila was no longer available to serve another term. It was not immediately clear why Ollila was no longer available to continue in the role. ($1 = 0.8037 euros) (Reporting by Marta Frackowiak and Thyagaraju Adinarayan and Jussi Rosendahl; editing by Jason Neely and Alexander Smith)

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