IMI slumps as it says earnings will be at low end of market views

IMI slumped on Thursday after the engineering company said it expects adjusted earnings for the year to be towards the lower end of the range of current market estimates amid challenging market conditions.

The company said revenues for the three months to the end of September were 5% lower on an organic basis compared to the same period last year.

On a reported basis, revenues were down 7%, reflecting adverse foreign exchange movements partially offset by acquisitions.

IMI said that based on the performance in the year to date and current market conditions, organic revenues and margins in the second half will improve compared to the first.

However, both organic revenues and margins for the full year will be lower than last year with adjusted earnings per share towards the lower end of the range of current consensus.

IMI said that in order to ensure the organic elements of its strategic growth plan remain on track, and to mitigate where practical the impact of current market weakness, it was reviewing a number of cost-reduction initiatives.

Organic revenues in the critical engineering business were down 8% in the period compared with last year and 6% on a reported basis.

In Precision Engineering, organic revenues were 5% lower compared with last year and down 8% on reported basis.

In Hydronic Engineering, organic revenues were 2% higher and 7% lower on a reported basis when compared with last year.

Peel Hunt, which rates the stock at ‘hold’, cut its price target to 1,050p from 1,225p following the update and said it expects to downgrade its pre-tax profit estimate for the year by around 10% from £250m.

Investec pointed out that it cut estimates on the stock last month, anticipating a further deceleration in some end markets, but said the impact has been greater than it assumed and new guidance is likely to take consensus down by a further 10-11%.

“However, the long-term programme of revitalisation is progressing well and additional measures are being taken to deal with current softness,” it said, adding that it still expects the company to emerge from the downturn with better prospects.

At 1058 GMT, IMI shares were down 7.5% to 902.50p.