* Thyssenkrupp cuts free cash flow projection
* Raises full-year earnings forecast
* Second-quarter orders, sales, earnings beat expectations
* Shares fall to five-month low (Adds CFO, analyst, trader comment, ArcelorMittal comparison, shares)
By Georgina Prodhan
FRANKFURT, May 12 (Reuters) - German's Thyssenkrupp raised its 2017 earnings forecast on Friday but said it no longer expected postive free cash flow this year as capital spending rises due to higher prices for raw materials at a time of increased sales.
The industrial company's shares fell to a five-month low following the revisions, with analysts and traders disappointed both by the change to the free cash flow projection and that its new core earnings forecast was not higher.
Increases in steel prices are starting to feed through to the company's results, lifting sales at its Steel Europe business that it hopes to merge with Tata Steel's European operations by 23 percent in first three months of 2017.
But higher prices for raw materials, especially the coking coal used to produce steel, hit the divisions's profits - which fell by 29 percent - as well as the company's free cash flow, which was a negative 139 million euros ($151 million).
The world's largest steel producer ArcelorMittal, by contrast, more than doubled its quarterly core profit as both steel prices and shipments increased, comfortably beating analyst expectations.
Shares in Thyssenkrupp, which also produces elevators, submarines and car parts, hit a five-month low of 21.05 euros and were trading down 2.5 percent at 21.72 euros by 0828 GMT.
Chief Financial Officer Guido Kerkhoff pointed to ThyssenKrupp's longer lead times as a reason why steel price increases were taking time to feed through to its results.
"Thyssenkrupp is still on a growth course," Kerkhoff told reporters, pointing to 32 percent jump in quarterly orders, driven by plant engineering, materials distribution and elevators.
Overall, Thyssenkrupp beat expectations for sales and profits in its fiscal second quarter and raised its full-year forecast for adjusted earnings before interest and tax (EBIT) to 1.8 billion euros from 1.7 billion.
But full-year free cash flow (FCF) before the impact of mergers and acquisitions is now seen in the negative hundred millions of euros whereas it had previously been forecast to be slightly positive.
"Paring optimism from the print is downward revised FY17 FCF guidance," wrote analyst Seth Rosenfeld of Jefferies, keeping his "buy" recommendation on the stock.
Two Frankfurt-based traders said they had expected a larger upward revision to the full-year profit forecast.
For the second quarter, Thyssenkrupp reported a 12 percent increase in sales and a 31 percent rise in adjusted EBIT.
Thyssenkrupp's car parts and materials distribution operations exceeded profit expectations but Steel Europe fell short of forecasts, as did its plant engineering and naval vessel division Industrial Solutions.
Thyssenkrupp also said it would book a "significant" net loss for the full year due to the 900 million euro writedown it is taking on the sale of its Brazilian steel business CSA, ending an expensive American steel adventure. ($1 = 0.9208 euros) (Editing by Muralikumar Anantharaman and David Clarke)