Chemring Drops as Shutdown Adds to Pound Hurting Earnings

Chemring Group Plc, a U.K. supplier of countermeasures for combat jets, fell the most in 16 years after saying global political turmoil, currency shifts and production snags will reduce earnings this year and next.

Chemring plunged 23 percent, the biggest drop since April 1997, to 220 pence, the lowest price since November. The stock has fallen 4.2 percent this year, reversing gains that reached as high as 40 percent in July. Today’s trading volume was almost 18 times the three-month daily average.

Operating profit in the fiscal year ending this month will be reduced by 8 million pounds ($12.8 million) because of “quality and production issues” and the dollar’s exchange-rate movement against the pound, the Fareham, England-based manufacturer said in a statement today. Political disputes in the Middle East and a budget impasse in the U.S. are preventing deliveries, cutting earnings further in 2014, it said.

“This is mostly about problems with market conditions in general,” said Nick Cunningham, a London-based analyst at Agency Partners. Unresolved questions over the U.S. government budget will affect defense companies more broadly, he said.

The lowered forecast is the first for Chief Executive Officer Mark Papworth, who took over last November after a change in management following missed targets under his predecessor, David Price. The company also spurned a takeover offer last year from Carlyle Group LP.

Lockheed Hampered

Profit in 2014 “is likely to be less than the anticipated current year outturn,” owing to “continuing difficult market conditions,” Chemring said in a statement. The company plans to release a forecast for next year in November.

Lockheed Martin Corp. and the Sikorsky helicopter division of United Technologies Corp. are among U.S. military contractors saying that payments have been delayed or that they expect postponements as the U.S. government halts business over the lack of a current budget.

“The full impact of the U.S. government shutdown is not yet known, but it will impact the October order intake and deliveries” to the Pentagon, Chemring said. Even though the U.S. Defense Department is bringing much of its civilian workforce back to their jobs, Chemring said, operations remain hampered as some government operations remain closed.

The manufacturer continues “to closely manage cash and working capital.”

The company also said it booked a countermeasures contract in the Middle East from a delayed order, enabling it to report the profit in the fiscal year ending this month.

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