Smiths Group Falls on Outlook for Operating Profit: London Mover

Smiths Group Plc shares fell after the U.K. producer of security scanners said profit will be hurt by contract difficulties and as its detection unit makes provisions for legal disputes.

The shares dropped 1 percent to 1,377 pence in London, the biggest fall since July 3. Operating profit for the financial year ending July 31 will probably be as much as 15 million pounds ($22.8 million) less than expected, London-based Smiths said in a statement today.

“The final outcome of three contractual commitments entered into prior to 2010 are anticipated to be materially adverse to previous expectations,” the company said. These are non-European airport and train contracts that became either less profitable or unprofitable mainly because of project delays and unfavorable currency movements, said Colin McSeveny, a spokesman for Smiths.

“The detection business is highly volatile because it’s a contract-based business, and projects can be very lumpy,” Alasdair Leslie, an analyst at Societe Generale SA, said in a telephone interview. “Smiths is taking steps at the moment to try and address that.” Societe Generale recommends selling the shares and has a 12-month price target of 1,200 pence.

JPMorgan Cazenove has reduced its 2013 margin estimate for the detection division, analyst Glen Liddy said in a note today. JPMorgan cut its recommendation on the stock to neutral from overweight, with a price target reduced to 1,460 pence from 1,500 pence.

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