Cobham Slumps After Third Profit Warning in Less Than a Year

  • Maritime-satellite demand ‘subdued,’ wireless arm needs funds
  • Outgoing CEO says challenge operational, no long-term issues

Cobham Plc shares tumbled 19 percent Monday after the U.K. aerospace and electronics supplier cut its full-year earnings forecast, extending a run of profit warnings that prompted the appointment of a new chief executive officer in August.

Demand for Cobham’s maritime satellite and communications products is “subdued,” the wireless-connectivity arm has operational issues and needs funds, and extra costs have been incurred from technical glitches on space-related programs, the Wimborne, England-based company said in a statement.

Receipts from the supply of refueling gear -- the market for which Cobham is best known -- to Boeing Co.’s KC-46 tanker program have also been delayed as the company works to meet U.S. Federal Aviation Administration conditions, locking up about 40 million pounds ($49 million) in cash until the year’s end.

Departing CEO Bob Murphy said on a conference call that Cobham is wrestling with one-time operating challenges “to get the business right-footed and to move forward,” adding: “We don’t have a long-term issue.”

Including gains from a drop in the value of the pound since Britain’s vote to exit the European Union on June 23, trading profit will be between 255 million pounds and 275 million pounds, Cobham said. That’s a 10 percent downgrade in expectations, Sandy Morris, an analyst at Jefferies, said in a note to clients.

Cobham shares had their steepest intraday drop since April 26 and traded almost 17 percent lower at 133.7 pence as of 11:55 a.m. in London, taking the decline this year to 44 percent and valuing the company at 2.28 billion pounds.

New Direction

The forecast-cut is the third since November 2015. Even though Cobham expects an improvement in the fourth quarter “from increased volumes in a number of areas,” that won’t be sufficient to meet earlier guidance, the manufacturer said. It didn’t provide a forecast for the year starting January.

Cobham in August named David Lockwood, head of wireless communications and electromagnetic developer Laird Plc, to become CEO by Jan. 1, succeeding Murphy, whose $1.46 billion acquisition of wireless specialist Aeroflex had aimed to dilute the company’s focus on shrinking defense markets.

The purchase, while “important strategically” amid a downturn in U.K. and U.S. military spending, placed an “incredible amount of stress on the near-term financial success of the business,” Murphy said Monday.

Since the acquisition, Cobham has disposed of businesses in four separate transactions to shore up cash and reduce debt. Delivery snags at the wireless unit also prompted it to raise 500 million pounds in a rights issue in April, a move that Morris said at the time was “tough medicine” for investors.

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