Qinetiq Drops Amid Cost Cuts on U.S. Defense Plans

Qinetiq Group Plc, the partner to the U.K. military for a new drone development center, fell the most in more than nine months after saying it will take a charge of $25 million on cost cuts to adjust to lower U.S. defense spending.

Qinetiq fell as much as 5.3 percent to 195 pence, the most since June 15, and slipped 1.7 percent to 202.50 pence at 9.46 a.m. in London. The stock has risen 10 percent this year.

“The majority of these cost reductions are in the U.S. Services division where reduced federal services spending is creating a more competitive trading environment,” the London-based company said in a statement today. Acquired goodwill held in the unit will be reassessed at the end of the month, when the company’s financial year closes, it said.

Qinetiq and other defense contractors are contending with slowed activity at the Pentagon as well as reduced military spending in the U.K. The company’s cost cutting is focused on reducing property and infrastructure costs, as well as trimming management layers, it said today.

“It’s a reminder of the continued deterioration in the U.S. services end market,” William Shirley, a London-based analyst at Liberum Capital who has a hold rating on the stock, said in a note today. “The market remains tough and Qinetiq needs to pull another rabbit out the hat.”

The company, which is scheduled to report full-year results on May 23, said its U.K. business is performing well, in part owing to a “more competitive cost base.” The company reiterated that it is on course to meet its financial forecasts for the year ending March 31.

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