By Geoffrey Smith
Investing.com -- A recurrent feature of Covid-19 is that it has hit those hardest who suffer ‘co-morbidities’. That’s as true for stocks and companies as it is for people.
When the economic history of the pandemic is written, it looks very likely that someone will have to decide whether Thyssenkrupp (DE:TKAG) died ‘of’ Covid-19 or ‘with’ Covid-19.
That the company is doomed one way or the other, however, looks increasingly clear.
Thyssenkrupp reported a loss before earnings and taxes of 1.6 billion euros ($1.9 billion) for the year through September on Thursday, actually a little better than its forecasts of somewhere between 1.7 and 1.9 billion thanks to cost control and liquidity management. But sales fell 15% and order intake, a forward look into next year’s business, was just as miserable, falling 17%.
That means that further, deeper cost-cutting is required. The company said it will shed another 5,000 more job cuts, a recognition of the fact that its operating businesses continue to hemorrhage cash. That brings the total planned job cuts over the next three years to 11,000, over one-tenth of the workforce. So far, Thyssenkrupp has agreed packages with 3,600 of those affected.
“We will have to move further into the “red zone” before we have made Thyssenkrupp fit for the future,” said Martina Merz, the Bosch veteran who felt compelled to take direct responsibility for steering the company away from the rocks when she fired CEO Guido Kerkhoff earlier this year.
Merz dropped a heavy hint that the next step may have to be compulsory redundancies, a rare step in a country whose working-age population is shrinking faster than any in Europe.
“The next steps could be more painful than the previous ones,” she warned. “But we will have to take them.”
That is putting it mildly. One third of the 15 billion euro gain on the sale of its elevator division was eaten up by operating losses and another 600 million euros by restructuring costs. The rest will only be thrown at covering the yawning gap in its pension liabilities. The automotive sector, Thyssenkrupp's key customer, expects to produce 25% fewer cars in Europe this year, and is in any case set to buy less steel in future as it replaces it wherever possible with lighter, higher-performance materials.
Thyssenkrupp stock fell 7.6% on the news on Thursday to a two-week low. The stock already trades as a bankruptcy play rather than a bona fide steel stock, its own particular problems outweighing the mini-revival that has grabbed the sector recently.
The outlook for the rest of the sector has taken a turn for the better in recent weeks, with the election of Joe Biden seen as likely to end the era of transatlantic tariff wars, and with progress in vaccine testing encouraging broader hopes for an end to the pandemic. Arcelormittal stock is up over 30% since late September while Austria’s Voestalpine is up 20%. Kloeckner, which makes steel products rather than the commodity steel itself, is up 25% in the last three weeks and now trades at its highest since February.
For Thyssenkrupp, however, it may all be too late.