Krones Gains as DZ Bank Estimates Pretax Margin at Record

Krones AG (KRN) rose to a two-year high after analysts at DZ Bank said restructuring measures and U.S. business growth will probably lead to record pretax margins at the world’s largest maker of filling and packaging machines.

Krones increased as much as 3.1 percent to 59.39 euros, the highest intraday price since July 8, 2011, and was trading up 2.1 percent at 12:24 p.m. in Frankfurt. The company value stood at 1.86 billion euros ($2.43 billion) and trading volume was 83 percent of the three-month average.

“After years of losses, we are now more confident that the turnaround in subsidiaries Kosme and process technology will be successful,” Jasko Terzic and Markus Turnwald, Frankfurt-based analysts at DZ Bank, wrote today in a research report, in which they raised their recommendation to buy from sell. “Krones will not only be able to raise order intake in emerging economies in 2014, but will also receive tailwind from North America.”

The manufacturer, which is based in Neutraubling, Germany, said on April 24 that first-quarter pretax profit rose 20 percent, generating a margin of 5.7 percent of sales, with the Kosme and process-technology unit “well on track” to break even this year. The DZ Bank analysts estimated that the second-quarter pretax margin will amount to 5.9 percent.

Krones may be able to demand higher prices as main competitor, Salzgitter AG (SZG)’s KHS unit, might cease discounts that it was using to raise capacity utilization, the analysts said. Entering the market for beverage-industry valves in 2014 will increase sales by an additional 7 million euros in 2014, Terzic and Turnwald said.

To contact the reporter on this story: Weixin Zha in Frankfurt at wzha2@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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