In the second quarter of 2017 there have been 45 profit warnings. This is the lowest level for seven years. But consultancy EY warns that it may be unwise to read too much into that stat.
Profit warnings are a measure of performance against expectations. A stronger than expected global economy combined with falling forecasts have led to a low level of profit warnings.
Companies have had time to adjust to external issues such as a fall in sterling and therefore adjusted their growth estimates. This means that when companies have issued profit warnings this year it is likely to be due to internal factors such as operational issues rather than external factors.
EY said twice as many companies cited internal factors in the second quarter of 2017 compared to the same time last year.
And while overall the numbers are down, there has been a high level of profit warnings in the general retailer sector, seven in the second quarter. This equates to 28% of the sector and does not bode well for the overall UK economy as it suggests weaker consumer confidence and less disposable income.
BREXIT WORRIES
While 2016 was characterised by the Brexit vote and the resulting political uncertainty, this year we’ve had a surprise election resulting in a hung Parliament heightening pre-existing concerns.
Brexit negotiations have started and EY’s ITEM club thinks that the current political situation means the result should lead to a more ‘business friendly’ agreement. There are challenges to UK listed companies ahead though.
After the last period of low profit warnings in 2010, the following year there was a 42% increase.
‘There are advantages this time around ? such as a better global outlook ? but once again, what happens next in profit warnings depends on the ability of companies to adjust,’ says Alan Hudson, a partner at EY.
