Thyssenkrupp Stock Rises on Cautiously Optimistic Outlook, Cost Cuts

Thyssenkrupp AG  (TKAMY) shares rose to a one-month high Thursday after it said cost-cutting and a U.S. infrastructure spending boom would boost earnings.

The Essen, Germany-based steelmarker, Germany's largest, said adjusted EBIT fell to €1.47 billion ($1.55 billion) over the 12 months to the end of September, down 12% on the previous year figure of €1.7 billion, while net income was €261 million, down from €268 million. 

Shares rose, however, to 0.75% to a one-month high of €22.08 each in Frankfurt trading, extending their 3-month gain to nearly 5%. 

"The fiscal year was marked by high import and price pressure in the materials businesses," the company said. "Especially in Europe, the recovery in prices came later than originally expected and from a lower level."

Steel makers have been buffeted by higher input prices over the second half of the year following a sharp rally in the prices for in inputs including iron ore and coking coal, which have gained more than 60% and 300%, respectively, since the start of the year. Steel makers have passed much of those costs onto their customers but have struggled to consistently maintain profit margins due to volatility.

Thyssenkrupp said that volatility in commodity prices made its cost cutting program vital to its ability to grow earnings. It claimed €1 billion of savings had been made over the past year, ahead of its target of €850 million.

CEO Heinrich Hiesinger also said he was hopeful that President-elect Donald Trump's promise of a $1 trillion investment in U.S. infrastructure could prove a boon to the company's sales. "The positive outlook he (Trump) has given for the infrastructure sector gives business opportunities for us," Hiesinger told Bloomberg TV Thursday.  

The prospect of increased demand out of the U.S. and increasing confidence in Chinese demand provided a boost to Japanese steel producers on Thursday, with Kobe Steel, Nippon Steel & Sumitomo Metal and JFE all posting strong gains on the Tokyo market.  

Thyssenkrupp said Thursday that adjusted EBIT for the current financial year ending Sept. 2018 should be about €1.7 billion, below analyst expectations of closer to €1.9 billion. The "adjusted EBIT...is a negative and unless (conference) call details are compelling, we see risk of consensus downgrades," noted Goldman Sachs.

The company also announced a lower-than-expected dividend of €0.15 per share for 2015/16, missing analyst consensus expectations of €0.18.

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