Deutsche Lufthansa AG (LHA) predicted operating profit for 2013 that fell short of analysts’ estimates as restructuring costs mount and the strong euro depresses revenue, causing the stock to drop the most in seven weeks.
Operating profit this year will be 600 million euros ($820 million) to 700 million euros, Lufthansa said today in a statement, a week before the airline is scheduled to announce earnings. Analysts surveyed by Bloomberg predicted earnings of about 918 million euros. After three quarters, operating profit reached 660 million euros, Lufthansa said.
“It is a mix of higher restructuring costs, weaker pricing in our cargo operations and currency headwinds,” Chief Financial Officer Simone Menne said on a call with analysts.
Lufthansa dropped as much as 5.7 percent in Frankfurt trading, as Chief Executive Officer Christoph Franz struggles in his final months on the job to keep turnaround costs in check. Franz, who is leaving for Swiss drugmaker Roche Holding AG next year, said this month that he may need to revisit his overhaul efforts, which are denting full-year profit by 300 million euros in costs, according to the airline.
The euro is the best performer among a basket of 10 developed-market currencies this year while the Japanese Yen is the worst, meaning Lufthansa’s revenues generated in Japan and other countries are lower when translated into euros.
“The market had expected weak numbers already, but todays announcement is still somewhat weaker than those expectations,” said Frank Skodzik, an analyst at Commerzbank in Frankfurt. “Consensus estimates will have to come down further.” He recommends clients “buy” the shares and sees them rising to 18.20 euros within a year.
The German airline is scheduled to release full earnings for the first three quarters of the year on Oct. 31, and today’s outlook is a “more precise update” from a target to boost operating profit this year. Revenue will be unchanged from 2012, and operating profit in the first three quarters saw a drop of 250 million euros, Lufthansa said. That figure includes restructuring costs of about 200 million euros.
Franz has suspended dividend payments while boosting spending to modernize the fleet. He is halfway through a restructuring program that includes the elimination of thousands of jobs and a reorganization of large parts of the domestic network around the low-cost Germanwings subsidiary.
Prices at the company’s cargo business did not develop as expected, Menne said on the call, while negative currency effects were affecting Lufthansa in all regions. Lufthansa said it expects the total costs for jet fuel to be about 7.1 billion euros this year, about 300 million euros less than the record 7.39 billion euros it spent last year.
Lufthansa declined as much as 85 cents to 14.01 euros in Frankfurt, the most since Sept. 4, and traded at 14.25 euros as of 9:25 a.m. The stock has been little changed so far this year, while the Bloomberg World Airlines Index has gained 19 percent in the period.
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