Thyssenkrupp cuts profit margin outlook for capital goods business

Thyssenkrupp blamed a strong euro and higher material costs for the cut in margin guidance at the capital goods business

Thyssenkrupp cut the profit margin forecast for its capital goods business on Tuesday, the future heart of the German company after its planned retreat from steel.

The set-back, which covers the group's elevators, car parts and plants units, is a blow for CEO Heinrich Hiesinger, who has been striving to sharpen the sprawling company's focus on technology and reduce its exposure to the volatile steel sector.

Thyssenkrupp shares fell as much as 5.4 per cent, with traders and analysts pointing to a 22 per cent decline in new orders at the capital goods business in the second quarter.

"Order intake in Cap Goods is underwhelming," analysts at JP Morgan wrote. Peers at Citi said continued challenges in Thyssenkrupp's capital goods business were one of the "underlying reasons for our Neutral rating on Thyssenkrupp".

Thyssenkrupp, which makes everything from chemical plants and car parts to submarines and steel, blamed a strong euro and higher material costs for the cut in margin guidance at the capital goods businesses.

Those businesses are expected to form the core of the company once a planned steel joint venture with Tata Steel is signed next month, and following an expected sale of its Materials Services trading unit.

The adjusted operating profit margin for the elevators unit is now expected to be at least stable this year, compared with a previous forecast for a rise of 0.5-0.7 percentage points.

At Components Technology, which supplies the automotive industry, margins are also tipped to stagnate, compared with a previous forecast for a rise. At Industrial Solutions, sales are no longer expected to rise but are seen stable year-on-year.

Thyssenkrupp still kept its group outlook for adjusted earnings before interest and tax this year of 1.8-2.0 billion euros ($2.2-2.4 billion), driven by its steel unit.

Second-quarter steel profits more than doubled on the back of a price recovery that has also benefited rivals such as ArcelorMittal.

Group quarterly adjusted operating profit was 500 million euros, in line with analyst forecasts and masking a surprise 23 million euros loss at Industrial Solutions, which builds plants and ships.

Lower corporate costs, which have been a key issue for some Thyssenkrupp shareholders, helped to offset that. They fell 34 per cent to 81 million euros on an adjusted operating profit level, whereas analysts had expected 117 million.

Investors, most notably Thyssenkrupp's second-largest shareholder Cevian, have repeatedly pointed to the group's overly complex conglomerate structure and the high costs related to it, calling for a simpler set-up to slash spending.