Smiths’ Share Price Slides on Profit Warning

on Jul 17, 2013
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iNVEZZ.com, Wednesday, July 17th: British diversified engineering company Smiths Group Plc (LON:SMIN) has warned that full-year headline operating profit would to be up to £15 million lower than current expectations due to legal problems at the Smiths Detection unit. Smiths’ share price tumbled almost five percent in early morning trading in London today.

**Legal Costs to Weigh on Smiths Group’s Full-Year Profits**
The FTSE 100 engineering group today said in a trading update that its Smiths Detection division, which makes security scanners and X-ray machines for airports, borders and military checkpoints, “has identified that the final outcomes of three contractual commitments entered into prior to 2010 are anticipated to be materially adverse to previous expectations.”

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The Smiths Detection unit, which accounts for nearly a fifth of Smiths Group’s revenue, has also determined to make additional provisions for the costs associated with certain legal disputes. “As a result, headline operating profit for the Group overall is likely to be up to £15m below current expectations,” Smiths said.
The group will announce the results for the financial year ended July 31, 2013 on September 18. Prior to the release of the latest trading update analysts had expected the engineering company to report an operating profit of £562 million for the year ended July 31. In 2012, Smiths Group reported operating profits of £554 million.

The Guardian quoted a Smiths Group spokesman as confirming that the legal cases were unrelated to class actions over asbestos poisoning at the group’s John Crane division, which supplies products and services to the oil and gas industry.
!m[Smiths Detection Sets aside £15 Million for Legal Costs](/uploads/story/4062/thumbs/pic1_inline.PNG)
Reuters quoted Michael Blogg, an analyst at Investec Securities, as saying that the £15-million hit for Smiths Detection looked like a one-time incident.

“Although this update is negative, it does not fundamentally change our view that this is a group containing high-quality operations, most of which are performing well against mixed market conditions,” Blogg noted.
Smiths Group reported that trading for its other divisions had continued broadly in line with the interim management statement issued in May.
**Smiths’ share price was 3.09 percent down at 1,348.00p as of 10:12 BST on 17 July 2013.**

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