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German industrial giant Thyssenkrupp on Tuesday raised its full-year outlook for the second time in three months, buoyed by a recovery in demand for steel and car parts, particularly in China.
The back story.
which makes steel, submarines, and car parts, employs more than 100,000 people worldwide. The group has been going through a radical restructuring designed to transform it from a sprawling conglomerate into the “leanest possible holding,“ to help turn around performance.
Read:German Industrial Giant Thyssenkrupp Is Restructuring. That Could Reboot the Stock.
To help fund the restructuring and reduce its debt load, Thyssenkrupp last year sold its lucrative lift and escalators business to a private equity consortium for €17.2 billion. In November, the company announced plans to cut another 5,000 jobs, taking the total number of layoffs to more than 12,000.
It is also considering spinning off its steel division, which has been hit by years of cheap Chinese competition—after several failed attempts to merge or sell the business. Most recently, it ended talks with metal magnate Sanjeev Gupta’s Liberty Steel over the sale of the steel unit, saying ideas about the corporate value and the structure of the transaction were “far apart.”
What’s new: Thyssenkrupp said on Tuesday that it now expects an adjusted operating profit in the “three-digit million euro range” in the 2020-2021 period, after previously predicting it would almost break even. Sales are expected to grow “in the low two-digit percentage range,” compared with a previous “single-digit” estimate, but will remain well below prepandemic levels, the company said.
“We made up more ground in the second quarter,” said Thyssenkrupp Chief Executive
Martina Merz
in a statement on Tuesday. “On the one hand we were helped by the recovery in many of our markets. On the other, our performance measures are having the planned effect.”
But she added: “We still have a lot of work to do.”
The Essen-based company reported a net loss of €211 million ($257 million) for the second quarter, compared with a net loss of €948 million for the same period last year.
However, the group said negative free cash flow before mergers and acquisitions in the period was expected to be €750 million, down €541 million from the previous year.
Thyssenkrupp was the second-biggest loser on the Stoxx 600, dropping more than 10% in early-afternoon European trading on Tuesday. The stock has risen almost 26% so far this year, according to FactSet.
Looking ahead. Thyssenkrupp reported a strong set of results, with acceleration in underlying momentum for revenues and operating leverage leading to a solid increase in adjusted Ebit (earnings before interest and taxes), analysts at Citi wrote in a research note to clients on Tuesday. “Stronger order intake and operating leverage in the quarter should help to keep the momentum strong in Q3’FY21, which we believe should drive consensus upgrades,” they added.
The company has been bolstered by a global recovery, which has increased demand for its products, but it is clear from the results that it has a long way to go before having positive cash flow. Despite the upgrade, the forecast remains conservative, according to Jeffries analysts led by Alan Spence. They added that Thyssenkrupp is being cautious due to “continued momentum in raw materials and steel prices.”
