FRANKFURT (Reuters) - ThyssenKrupp AG (TKAG.DE), Germany’s biggest steelmaker, warned that the coming months would remain bleak after weak steel and car markets caused a drop in profit, and said it did not expect a return to growth until the next financial year.
Steel companies have been struggling to make a profit in the rapidly shrinking European market, where austerity has cut sales of cars and new buildings, and demand is seen declining further this year.
“Against the background of the weak global economic recovery, the prospects for the steel market remain subdued,” ThyssenKrupp said on Tuesday after reporting a 38 percent slide in first quarter core profit. Its fiscal year ends in September.
ThyssenKrupp’s rival ArcelorMittal SA ISPA.AS, the world’s No.1 steelmaker, last week reported a $3.7 billion loss for 2012 after writing down the value of its European steel business by several billion dollars.
ThyssenKrupp expects its full-year adjusted EBIT from continuing businesses to decline by more than half to about 1 billion euros in its fiscal year ending in September, from 2.29 billion euros last year.
Sales will remain about flat at 40 billion euros this year before returning to growth in 2013/14, ThyssenKrupp said. “Rising sales and structural improvements should have a correspondingly positive impact on earnings,” it said.
Chief Executive Heinrich Hiesinger, who took the helm two years ago, is trying to reduce exposure to the volatile steel sector and shift investments into higher-margin products and services, such as elevators, submarines and parts for manufacturing plants.
He is nearing the end of a push to sell assets which have a total of 10 billion euros in annual revenue, and is also cutting costs and changing management structures in an attempt to return the company to growth and pay down debt.
But he faces an uphill battle as the global economy remains weak and after a series of setbacks and scandals caused him to axe half his management board late last year.
ThyssenKrupp reported the 38 percent slide in its adjusted earnings before interest and tax (EBIT) to 229 million euros ($306.4 million) for its fiscal first quarter through the end of March, just above consensus expectations of 220 million in a Reuters poll, weighed down by a 71 percent drop in profit at its European steel business.
Net profit was down 29 percent at 29 million euros, falling short of consensus of 40.8 million.
ThyssenKrupp said earnings would remain depressed at about 200 million euros in its fiscal second quarter, but would pick up after that as customers started refilling their inventories.
Nonetheless, it said it saw no general economic recovery this year as the euro zone debt crisis weighed on national economies while emerging markets grew more slowly.
Revenue and new orders at ThyssenKrupp’s Steel Europe business were down about 11 percent in the first quarter, as prices for flat steel fell and customers in the automotive and construction industries drew down their inventories.
By the end of December, ThyssenKrupp’s net debt eased to 5.2 billion euros from 5.8 billion three months earlier thanks to the sale of stainless steel unit Inoxum to Finland’s Outokumpu (OUT1V.HE), and the company has said that figure would decline further once it has agreed the sale of its Steel Americas division.
ThyssenKrupp aims to agree a cash deal for Steel Americas, which comprises two mills in Brazil and Alabama, around May and complete the sale by the end of its fiscal year in September, throwing in the towel after sinking billions of euros into the project over recent years.
A massive write-down on the value of the project led to a 4.7 billion euro annual loss last year, forcing ThyssenKrupp to pay no dividend for the first time since the 1999 merger of Thyssen and Krupp.
If it fails to divest Steel Americas by the end of September, it will have to shoulder another loss in the hundreds of millions of euros for the year, it said.
Editing by Christoph Steitz and Pravin Char