Elevator maker Kone beats forecasts, sees China recovery

By Tarmo Virki

HELSINKI (Reuters) - Kone reported a smaller than expected 10% fall in first-quarter profit on Wednesday, with demand for its elevators and services strong in many countries despite the coronavirus outbreak.

The company performed strongly in central and northern Europe and the Americas in the first quarter, Chief Executive Henrik Ehrnrooth said, but the impact of the coronavirus had hurt Kone in China, India and southern Europe.

"We have been able to weather the storm quite nicely," Chief Executive Henrik Ehrnrooth told reporters.

The elevator maker's shares were 6.8% higher at 55.54 euros in afternoon trading.

Kone said new equipment orders from China grew slightly in terms of units and clearly increased in terms of monetary value.

"The activity level in China right now is very high, we are seeing very fast recovery of that market," Ehrnrooth said.

China is the key market for elevator industry. Kone said China accounted for 63% of the global new equipment market of around 1 million units in 2019, with Europe, Middle East and Africa region the second largest area globally.

Kone's adjusted operating profit of 205.6 million euros ($223 million) topped the 184 million expected by analysts, Refinitiv Eikon data showed.

"Looking ahead, it is clear that in terms of results development, the worst is still ahead of us in most parts of the world," Ehrnrooth said. "The pricing environment remained relatively stable in January-March. However, there were signs of some pricing pressure towards the end of the quarter."

Last month, Kone downgraded its business outlook for this year because of the coronavirus outbreak, saying its 2020 sales and adjusted operating profit margin would at best be flat from 2019.

The company reiterated that outlook on Wednesday.

Kone said it won orders worth 2.1 billion euros in the quarter, up 0.7% from a year earlier, and comfortably beating 16 analysts consensus forecast of 1.9 billion published by Kone.

While sales of new equipment dropped 5% from a year ago, sales of services rose 5%, with maintenance sales - which are the most resilient to economic cycles - growing 6.4% to 817.5 million euros.

"Maintenance revenues held up better than we thought - this is perceived as a 'system critical service' by countries," Jefferies analysts said in a research note, noting that Swiss rival Schindler (NYSE: SCHP) sees service and repairs revenues rising in 2020.

Kone's numbers and outlook followed Schindler, which reported falling first-quarter profit and sales on Wednesday as the coronavirus epidemic led to the shutting down of production plants and construction sites.

The first quarter was marked by Thyssenkrupp's sale of its elevator business to a consortium of Advent, Cinven [CINV.UL] and Germany's RAG foundation.

(Reporting by Tarmo Virki and Anne Kauranen; editing by Jason Neely, Jane Merriman and Timothy Heritage)

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