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By William Schomberg
MILAN, July 31 (Reuters) - Italy's Pirelli showed on Thursday it was clawing out of a slump, reporting a 27 percent rise in first-half operating profit, helped by its key tyre unit and cost-cutting at its cables divisions. Pirelli, which effectively controls Telecom Italia , had a grim 2002 as telecoms and power firms slashed spending.
But the group showed a first sign of recovery in the first quarter as savings from job cuts kicked in, and Thursday's preliminary first-half results confirmed the trend with operating profit up 27 percent at 118 million euros ($133.4 million).
That was above a 99-110 million-euro range of three forecasts from Milan brokerages.
Pirelli's shares were up 2.6 percent by 1330 GMT, outperforming a 1.1 percent gain for the DJ Stoxx index of European industrial stocks .
Revenues fell 9.8 percent to 3.02 billion euros but that was partially offset by cost-savings of more than 100 million euros.
"The results show improvement continues but it's a very slow process," said Oriana Cardani, an analyst with brokerage Rasfin.
Excluding the impact of foreign currency fluctuations -- U.S. sales have been hit by the strong euro -- plus changes in the price of metals used in cables and changes in accounting of subsidiaries, revenues would have risen 3.3 percent.
Pirelli said sales at its tyre unit rose 1.4 percent to 1.51 billion euros, boosting operating profit to 127 million euros from 111 million euros a year earlier.
LOWER CABLE, TELECOMS SALES
Sales at the power cable arm shrank 19 percent to 1.31 billion euros but operating profit was little changed at 26 million euros, helped by the cost-cutting.
At the telecoms unit, sales fell almost 20 percent to 228 million euros, widening an operating loss to 28 million euros from 20 million euros. However, the unit's operating performance improved in the second quarter, the company said.
Pirelli confirmed its plan to boost operating profit at its tyres and power cable divisions this year and to break even at operating level in the fourth quarter.
First-half net figures are due in September, by when Pirelli will have merged with parent holding Pirelli & C .
Pirelli's first-quarter net loss was 22 million euros, hurt by its stake in holding Olimpia which led a 2001 takeover of Olivetti and its controlling stake in Telecom Italia.
The Pirelli-Pirelli & C merger is part of a shortening of the long chain of control over the Telecom Italia group which also includes the fusing of Telecom Italia with Olivetti .
Shares in the new Pirelli & C and start trading on Monday.
In its own results statement on Thursday, Pirelli & C said its operating profit rose to 141 million euros from 101 million euros a year earlier, helped by 53 million euros profit at its properties division Pirelli & C Real Estate .