Germany: Krones to untertake further structural adjustments

Following the loss in the second quarter of 2019, the earnings situation of Krones has eased slightly in the third quarter, as shown in the quarterly results which were published today. From July to September 2019, earnings before taxes (EBT) of the world’s leading manufacturer of filling and packaging technology came to EUR 13.5 million. The EBT margin went down from 3.0% to 1.4%. Krones generated EBT of EUR 61.4 million in the first nine months of 2019 (previous year: EUR 139.4 million). The EBT margin went down from 5.2% to 2.1%.

Profitability was impacted by high costs, mainly of materials and labor, and an unfavorable product mix. Due to temporarily reduced demand for machinery and lines in plastic technology, production capacity for such products was underutilized, most of all in the second quarter. The EBT margin was also negatively affected by the fact that revenue from the profitable after-sales business in the first three quarters of 2019, although higher than in the previous year, was below budget overall. Krones generated consolidated net income of EUR 40.3 million in the first nine months of 2019 (previous year: EUR 99.4 million). Earnings per share decreased from EUR3.16 to EUR1.28.

Krones’ customers, like others, are taking the many general economic uncertainties into account in their investment decisions. Overall, however, Krones’ market is relatively stable. Order intake decreased slightly by 0.6% year-on-year from July to September 2019, to EUR 919.3 million. In the first three quarters of 2019, the contract value of orders increased slightly year-on-year to EUR 2,957.9 million (previous year: EUR 2,940.0 million). Due to its broad range of products and services Krones was able to compensate the temporarily weak demand in parts of the portfolio.

Besides the measures announced in July (, 17.9.2019), the Executive Board has taken further action to counter the negative impacts on earnings. In addition to short-term measures such as savings in budgets, Krones will significantly cut capital expenditure for the next one to two years. Acquisitions will likewise be suspended for the time being.

Krones works on consistently competitive cost structures in order to maintain and ideally expand its market share. The strategic measures launched so far, such as the price rises and the expansion of the company’s global footprint to date, are not enough for the medium-term earnings targets to be attained. There will therefore also be structural adjustments. All processes, organisational structures and resources are to be optimised. Portfolio streamlining will also contribute to improving the company’s efficiency. Overall, it cannot be avoided that 300 to 500 jobs, mainly at the German locations, will be eliminated.

Krones expects good production capacity utilisation in the fourth quarter. That will have a positive impact on profitability. The company is therefore sticking to its earnings guidance for the full year 2019 and continues to expect an EBT margin of around 3%. Attaining this target is challenging, however. The guidance for the EBT margin does not include any costs of structural measures. The company continues to expect revenue to increase by 3% in the full year 2019. For its third performance target, working capital to revenue, Krones expects a figure of 26%.

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