UK company profit warnings keep on coming

Profit warnings are tripping up more investors after big names including Diageo (LSE:DGE) and Kingfisher (LSE:KGF) joined the large number of mid-market companies feeling the strain.

Other FTSE 100 casualties in recent weeks have been Sunbelt owner Ashtead Group (LSE:AHT) and Burberry Group (LSE:BRBY), which told investors that profits will be at the low end of forecasts if conditions stay the same.

Today’s highest-profile warning came from a familiar source as FTSE 250-listed Dr. Martens Ordinary Shares (LSE:DOCS) said US trading conditions are increasingly difficult, compounding its recovery from supply bottlenecks at its new Los Angeles warehouse. Shares are down over 50% this year.

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Auction Technology Group (LSE:ATG) also sent its shares down by a fifth today after revenues guidance for the new financial year led the City to trim earnings forecasts. Having been one of the better performing 2021 IPO listings, the shares are now below their 600p starting point.

Halfords Group (LSE:HFD) lowered its guidance for full-year profits yesterday, blaming tougher conditions in cycling and consumer tyre markets for the downgrade. Shares fell by a fifth, prompting more than one City firm to recommend investors take advantage of the weakness.

According to EY, the median share price fall on the day of a profit warning rose to 15.1% in the third quarter of this year, up from 11.2% the year before.

The increasingly risk averse response of investors is most noticeable in the mid-market, where fears over the impact of ‘high for longer’ interest rates are acute. The average share price decline for companies in the £201 million to £1 billion turnover bracket rose dramatically to 17.3% from 10.6% the year before.

EY’s report found that profit warnings from companies of this scale made up 33% of all warnings in the quarter compared with 16% in the same period of 2022.

There were 76 warnings overall in the third quarter of 2023, down 12% year-on-year but 18% above the average for the period. Of the 170 companies warning in the first nine months of 2023, it added that 19% were downgrading for the third or more time in the last 12 months.

The highest number of warnings in the three months came from industrial support services with seven, followed by home construction and software and computer services with six.

A run of 14 consecutive interest rate hikes meant that a third of profit warnings in the quarter were blamed on tighter credit conditions. Delayed or cancelled contracts, cost pressures and weaker consumer confidence were the other leading reasons.

In the case of Ashtead last week, weather was to blame after a significantly quieter hurricane season led to lower levels of emergency response activity than in recent years. There were also fewer naturally occurring events, such as wildfires.

The warning by Diageo focused on trading pressures in the Latin America and Caribbean, where the drinks giant has seen lower consumption and consumer downtrading.

Kingfisher, the owner of Screwfix and B&Q, also blamed one particular marketplace after the underperformance of its Castorama and Brico Depot operation in France offset continued resilience in the UK.

This means that pre-tax profits for the year to the end of January will be £30 million short of the previous guidance of £590 million, compared with £758 million the year before.