Electrical equipment supplier Electrocomponents (ECM) hailed a return to revenue across all regions in the four months to January, but at the same time cautioned that rising costs would crimp earnings growth. Shares initially dropped 4% but by mid-morning had recovered to trade sideways at 937p.
On the one hand, the firm said it had seen improved revenue growth as it ‘continued to build on our strong foundations to accelerate growth’ and deepened customer relationships. It also said it remained confident in the group’s prospects and the ‘significant growth opportunities in both revenue and margins we see over the medium term’.
On the other hand, however, it said it was ‘cautious about the external environment’ and highlighted elevated freight, labour and logistics costs which it said were ‘likely to persist’ at the same time that it continues to invest in its customer proposition.
As a result, the company left its full year earnings expectations unchanged rather than raise them, with all the positive increase in momentum at the top line now likely to be offset by additional ongoing costs, impacting the gross margin.
Electrocomponents isn’t the first firm to flag rising input costs. Last month, online appliance retailer AO World (AO.) said in its trading update it had seen ‘significantly higher costs as we negotiate the operational challenges of working in a Covid compliant environment’.
Similarly, personal health care firm PZ Cussons (PZC) said in its half-year report it had seen accelerating revenue growth but at the same time it was experiencing ‘upward cost pressure’ on top of its higher marketing spend and therefore it left its full year guidance unchanged.