Military equipment maker Chemring (CHG) appears to be among the first UK-listed companies to be hurt by the US government shutdown which began on 1 October.
Blaming a combination of currency moves, production problems and the shutdown, Chemring warns on 2013 and 2014 profits which sends the shares crashing down 21.2% to 224p. Yesterday its larger peer BAE Systems (BA.) reassured the market that it remains unaffected by the political turmoil across the pond.
The bad news should not have come as a massive surprise to readers of Shares – we warned against following a directors deal back in August (1 Aug) due to the lack of visibility on earnings. The manufacturer of decoy flares, detectors for improvised explosive devices and ammunition has form for disappointing the market – issuing a pair of profit warnings in 2012 and a bid from private equity firm Carlyle (CG:NYSE) fall apart.
The company has been a victim of defence cuts in the US and, in particular, a winding down of combat operations in Iraq and Afghanistan. Under new chief executive officer Mark Papworth, who took the helm in November 2012, the shares had staged a recovery but any gains have now been wiped out.
Looking at today's announcement in more detail, the firm says this year's operating profit will be reduced by £8 million thanks to 'quality and production issues', principally at its facility in Kilgore, Tennessee, and by movements in the dollar against the pound which have reduced the sterling value of profits generated in the US. Pressure on the North American business, with the Defense Contract Management Agency not currently open for business, and tensions in the Middle East are expected to hit 2014 earnings too.
Chemring expects to give further clarity on the scale of next year's hit in a trading statement next month.