(Adds U.S. tariff exemption, analyst quote, updates shares)
By Madeline Chambers
FRANKFURT, Aug 22 (Reuters) - German steel and engineering group ThyssenKrupp AG beat expectations with its third-quarter results on Thursday and stuck to its full-year profit forecast on the back of improved steel demand, pushing its shares higher.
The world's number four producer of flat carbon steel reported a 27 percent fall in pretax profit to 316 million euros ($308 million) in the three months to June 30, well ahead of market expectations of 145 million euros.
ThyssenKrupp , plagued by low steel prices earlier in the year, said it had passed the weakest point in its markets and that restructuring measures had started to pay off.
"Business at ThyssenKrupp began to pick up again in the third quarter of fiscal year 2001/2002," said the group.
ThyssenKrupp shares jumped over seven percent in early trading and by 1442 GMT were up 4.7 percent at 13.92 euros, outperforming Germany's DAX , up 1.4 percent.
"The share price rise is justified because the figures are dramatically above the expectations," said Bankgesellschaft Berlin analyst Michael Riedel.
"They have improved results in all business areas and this shows that the restructuring measures taken in the first half of the year are now bearing fruit," he said.
Shares in the company have fallen 23 percent since January, but outperformed the DAX index by five percent.
The group said despite only weak impetus from the general economy, it expected the positive trend in the third quarter to continue in the fourth quarter and its pretax profit target for the year ending on September 30 was realistic.
It said seasonal effects would dampen sales in the fourth quarter and it also noted an extraordinary restructuring charge of about 100 million euros at the automotive division.
"The 2001/2002 target of 0.4 billion euros adjusted earnings before taxes nevertheless appears achievable," it said, adding that full-year sales would fall about five percent from the previous year to 36 billion euros.
ThyssenKrupp also said one-off divestment gains, amounting to 161 million euros in the first nine months, would boost full year results. In the fourth quarter it would make 191 million euros from the sale of an indirect stake in gas group Ruhrgas.
Analysts said the results signalled a good outlook.
"Looking at 2003, I think we might see some better figures," said Dresdner Kleinwort Wasserstein analyst Marcus Storr.
STEEL RECOVERY
ThyssenKrupp said a recovery in demand for steel on global markets had boosted earnings in its biggest division.
The steel arm posted a pretax profit of 121 million euros in the three months to June 30, down from 346 million euros a year ago but better than the first half when it sank into the red.
Although steel prices have risen from 20-year lows in recent months, ThyssenKrupp is expected to feel most of the benefit only after its business year ends. The group followed the world's largest steelmaker, Arcelor , in July by raising prices for steel delivered after October 1 and announcing another price rise for January.
"The question is if there was a build-up of inventory by customers or if there is sustainable higher demand," said Storr.
U.S. authorities also said they had exempted a final batch of 178 foreign steel products from controversial tariffs they imposed in March to bolster the domestic steel industry.
The new exemptions mean ThyssenKrupp will be allowed to export 82,600 tons of flat steel. A total of 137,000 tons of ThyssenKrupp steel has now been freed from the tariffs, only a tiny part of the 360,000 tons the company and its customers have sought exemptions for.
"This is not enough, the U.S. is playing for time and is trying to prevent retaliatory measures from the European Union," said a London-based analyst.
Profits at the automotive unit, undergoing restructuring, rose to 77 million euros from 48 million euros a year ago and incoming orders inched up to 1.8 billion euros.
Analysts also welcomed lower working capital requirements and a reduction in the group's debt level to 6.3 billion euros from 7.3 billion at the end of the first half, indicating progress towards its mid-term debt target of 5.5 billion euros.
"The strongly-reduced net debt level is a good thing because now they have potential to do some strategic moves, some acquisitions," said Riedel.
German carmaker Adam Opel has said ThyssenKrupp is a potential partner for its parts business and in June the Duesseldorf-based group said it planned to exercise an option to acquire the remaining stake in Finnish auto parts maker Valmet Automotive, boosting its 10 percent holding
Many analysts would like to see the group broken up, arguing its complex structure makes it hard for investors to follow.
Industry sources have said German companies, including ThyssenKrupp, mg technologies , Linde and MAN may consider merging their engineering units into one large group, allowing them to focus on their other activities.
But a move involving so many parties and their strategic shareholders, mainly German banks, may be too complicated to get off the ground. (Additional reporting by Marius Bosch)