Posco tops profit expectations in third quarter

Posco and its affiliates achieved 1.53 trillion won ($1.35 billion) of operating profit in the third quarter, the highest quarterly profit since the second quarter of 2011, the steelmaker said in a call with analysts Tuesday.

Consolidated operating profit grew 36 percent year on year, while net profit rose 16.7 percent to 1.06 trillion won. Operating profit is well above the 1.4 trillion won analyst consensus.

Revenue grew 9.1 percent year on year to 16.41 trillion won.

Korea’s largest steelmaker said the rise was the result of increased exports and higher product prices as well as the positive performance of its construction and energy affiliates. China’s steel production cuts during the winter heating season, implemented to reduce air pollution, affected prices.

Indonesian steel affiliate PT Krakatau also contributed to the strong results by achieving a record profit in the quarter ending September. Its operating profit grew by nearly eight times year on year to $63 million.

The steelmaker alone posted 1.09 trillion won in operating profit, up 51.7 percent year on year. Revenue increased by 9 percent to 7.91 trillion won.

With strong earnings in the third quarter, the company revised up its annual earnings target. In terms of consolidated earnings, the company raised its forecast by 2.9 trillion won to 64.8 trillion won. For the steelmaking operations, the target was revised to 30.7 trillion won, up 1.7 trillion won from its previous projections.

Despite positive earnings, Posco shares dipped 2.06 percent Tuesday to close at 261,000 won. The company’s share price has been declining gradually since early this year, when its share price hit 400,000 won.

“Investors are concerned as major local steel-consuming industries, such as automobiles and home appliances, have not been in very good shape,” a spokesperson from Posco said.

During the conference call, Yoo Byeong-og, head of the corporate strategy office at Posco, hinted at the possibility of mergers and acquisitions following major deals announced by competitors like ArcelorMittal.

Yoo said that the company has been reviewing mergers and acquisitions options. It is seeking suppliers of materials used in its steel mills overseas and opportunities that will help counter protectionist trade policies in the United States.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]