ThyssenKrupp Holds Steady in Third-Quarter 2012 Despite Market Pressures, to Spend Less than $2.5 Billion by Year's End

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Researched by Industrial Info Resources (Sugar Land, Texas)--Solid segment performance helped international steel giant ThyssenKrupp AG (OTC:TYEKF) (Duesseldorf, Germany) survive on shaky ground in the third quarter of the company's 2011-12 fiscal year, as a very cautious customer base and the fiscal chaos resulting from the European sovereign debt crisis weighed down orders and sales. The company reported net income of €238 million ($292.68 million), a 16.1% increase from third-quarter 2010-11.

Total sales stood at €10.23 billion ($12.58 billion), a 21.2% decrease from the same period last year. Segments affected by the ongoing European economic crisis included Steel Europe, which continues to see decreasing demand; Elevator Technology, which saw record quarterly orders for elevators and escalators, but also weaker earnings that were attributed to conditions in Southern Europe; and Components Technology, which suffered from a decline in European vehicle sales. Components Technology also took a hit from lagging demand in China's wind power and infrastructure industries, while the Material Services segment saw a noticeable drop in global demand. Still, Components Technology benefited from strong performances by other major customers, and solid demand in its mid-size and premium businesses.

ThyssenKrupp also benefited from the sale of Waupaca, one of the company's U.S. iron foundries, in the third quarter. The deal boosted ThyssenKrupp's after-tax earnings.

Capital expenditures totaled €329 million ($404.52 million) for the quarter, a 28.17% decrease from the same period last year, and €1.14 billion ($1.4 billion) for the first nine months of the year, a 33.14% decrease from the first nine months of 2010-11.

Industrial Info is tracking $6.7 billion in active projects involving ThyssenKrupp, including a $300 million addition at a stainless steel mill complex in Calvert, Alabama, and a $22 million expansion at a steering systems manufacturing plant in Terre Haute, Indiana. The Calvert project involves constructing a steel melt shop with a capacity of more than 1 million tons per year at a new stainless steel complex, while the Terre Haute project involves expanding an existing plant by constructing 25,500-square-foot and 30,000-square-foot buildings and installing three new assembly lines to increase plant and production capacity in order to handle two new customers. Both projects are expected to be completed in December 2012.

"We saw a very strong demand from mineral and mining [businesses] and the automotive industry," said Heinrich Hiesinger, the chief executive officer of ThyssenKrupp, in a conference call. "We saw some project delays for our chemical plants, but we do believe there are new chances coming up with some new investments in the U.S. We got requests for quotations for new fertilizer plants, driven by the extremely low gas prices in the U.S."

He added: "We see a continuing strong demand from the automotive industry, especially in the U.S. This strong demand could compensate for some weaker demand for our industrial components business."

The Plant Technology and Component Technology segments were the only major business areas to report gains in "EBIT," which in this case is defined as earnings before income taxes and costs related to disposals, restructuring, and impairment of non-current assets and other non-operating items:

• The Steel Europe segment reported sales of €2.9 billion ($3.57 billion), a 17.57% decrease from third-quarter 2010-11, and EBIT of €47 million ($57.79 million), compared with €322 million ($383.14 million) in the same period last year.
• The Steel Americas segment reported sales of €543 million ($667.64 million), a 26.57% increase from third-quarter 2010-11, and an EBIT loss of €263 million ($323.37 million), compared with an EBIT loss of €190 million ($233.64 million) in the same period last year.
• The Materials Services segment reported sales of €3.37 billion ($4.14 billion), a 15.35% decrease from third-quarter 2010-11, and an EBIT loss of €42 million ($51.65 million), compared with a gain of €149 million ($183.22 million) in the same period last year.
• The Elevator Technology segment reported sales of €1.43 billion ($1.76 billion), a 10.09% increase from the same period last year, and EBIT of €134 million ($164.76 million), an 11.26% decrease.
• The Plant Technology segment reported sales of €1.03 billion ($1.27 billion), an 8.91% increase from third-quarter 2010-11, and EBIT of €140 million ($172.14 million), a 6.87% increase.
• The Components Technology segment reported sales of €1.85 billion ($2.27 billion), a 4.1% increase from the same period last year, and EBIT of €459 million ($564.37 million), compared with €141 million ($173.63 million) in third-quarter 2010-11.
• The Marine Systems segment reported sales of €294 million ($361.49 million), a 38.62% decrease from the same period last year, and EBIT of €23 million ($28.28 million), a 62.9% decrease.

As competition toughens, ThyssenKrupp executives say that earnings in the Steel Europe and Material Services segments are expected to grow steadier in the last quarter of the fiscal year, while earnings in the Plant Technology segment are expected to remain high. The anemic Southern European market is likely to continue affecting the Elevator Technology segment, and the Components Technology segment is projected to see lower earnings because of the Waupaca sale.

For the full year, capital expenditures are expected to be as high as, but likely less than, €2 billion ($2.46 billion).

"We do believe that volume and price development [in material operations] will reflect continued and intense competition, and we believe that in such an environment we can see a stable earnings contribution in Steel Europe and Material Services," Hiesinger said in the conference call. "More precisely, Steel Europe [likely will be] overall flat, with some lower volumes offset by higher average revenues per ton. In the Americas, there will be further improvement from ramp-ups, but we are a little bit afraid that continuing price pressure will take away much of that upside."

He added that the company does not see any pickup on the horizon in the Southern European market.

For more information, visit Industrial Info's International Metals & Minerals Project Database.

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