The share price of industrial chains company Renold plc (LON:RNO) took a whipping on Thursday following a profit warning.
Reporting on the six months to the end of September, the company said trading had been mixed, and it now expected adjusted operating profit for the year to 31 March 2018 to be slightly below the lower end of the current range of analyst forecasts.
Group revenue in the period rose 8% from a year earlier, and 2% after adjusting for the impact of exchange rate fluctuations.
The Torque Transmission division delivered growth in revenue of 6.3% on a constant currency basis while the Chain division’s year-on-year revenue growth was 8.2%.
Machinery issues
The latter division, however, suffered major machine break-downs at the Einbeck facility in Germany, which reduced the availability of key product lines, leading to a second quarter decline in revenue of 4.5% - or an increase of 1.8% on a constant currency basis.
"It has been a frustrating first half for the Chain Division,” admitted Robert Purcell, the chief executive officer of Renold.
“Organic growth opportunities, particularly in Europe, have been converted but have failed to deliver the expected improvements in profitability due to issues at Einbeck and the rise in raw material prices. Management actions to address these issues are expected to benefit the second half of the year,” he added.
Broker finnCap responded to the update by lowering its profit before tax forecast for the current year by £500,000 to £15.7mln and trimming its earnings per share estimate by 3.4% to 5.0p. The broker’s rating moves from ‘buy’ to ‘hold’.
“This is a disappointing statement; while the press breakdown should be a temporary problem, sales price increases remain an issue to work through in the second half. With a heavy H2 weighting in profits, we therefore reduce our price target to 50p,” said investment analyst David Buxton.
Shares in Renold slumped 9.5% to 46.625p.