Morningstar | ThyssenKrupp Issues Profit Warning as Weakness at Industrial Solutions Continues
Weak order intake and lower revenue recognition of plant construction and shipbuilding projects combined with elevated completion costs results in lower than expected profitability for ThyssenKrupp in third-quarter 2018 and full-year 2018. Management guidance on adjusted EBIT for 2018 is now steered at the lower end of the previous forecast range of EUR 1.8 to EUR 2 billion, a result which would indicate a solid improvement over last year's EUR 1.7 billion level but falls short on our expectations as our forecasts were at the high end of guidance range. We are updating our estimates to recent developments with could result in a modest reduction to our fair value estimate of EUR 28 per share. We maintain our no-moat rating. ThyssenKrupp will be reporting its third-quarter results as planned on Aug. 9.Order intake in second quarter at industrial solutions declined 53% year on year and reduced investment activity especially in the fertilizer sector and the cement market will continue. Management expects an adjusted EBIT of around negative EUR 220 million in the third-quarter 2017/2018 for industrial solutions, which generated close to 13% of group sales in 2017. This is a disappointing result and mainly driven by higher expected costs for completion of a marine project in Turkey, a cement plant in Saudi Arabia, and a biofuel power plant in Australia.
One of our main focus points for the third-quarter results will be the performance of the steel Europe segment. In second quarter, ThyssenKrupp reported stellar EBIT adjusted growth for steel Europe due to cost control and significantly increased selling prices. However, we continue to believe the steel market remains challenging due to global overcapacity and continued raw material price  volatility. In this respect, we view ThyssenKrupp's intentions to join forces with Tata Steel positively as it creates Europe's second-biggest steelmaking company, enabling cost reductions within a competitive market.
ThyssenKrupp is the parent company of the ThyssenKrupp Group. Co. has six business areas: Components Technology, which provides components for the automotive and machinery sectors; Elevator Technology, which supplies passenger and freight elevators, escalators and moving walks, passenger boarding bridges, stair and platform lifts; Industrial Solutions, which comprises the System Engineering and Marine Systems units; Materials Services, which focuses on materials distribution and technical services; Steel Europe, which develops, produces and markets flat carbon steel in the European market; and Steel Americas, which produces, processes and markets steel products in North and South America.
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