US contract delays hurt Cobham, shares slump


British aerospace electronics group Cobham said continued delays in the award of US defence contracts would dent full-year sales and that it was uncertain about its growth prospects for the rest of 2010.

“The group continues to experience delays and deferrals in the award of certain US defence and security contracts,” the company said in a statement on Wednesday.
“Given the uncertainty over growth in the fourth quarter, the board recognises that the group could make only limited underlying progress in the full year, benefiting from cost efficiencies already made,” it said.

Shares in Cobham, which have risen 3 percent in the last month, were 7.3 percent down at 217.2 pence by 0840 GMT, valuing the business at around 4 billion pounds (US$6.5 billion). The company had warned of delays in August and May but still increased its interim dividend by 10 percent and expressed some hope that things would pick up.
“There’s no precise guidance but this seems like a semi profit warning to me,” an analyst that covers Cobham but wished to remain unidentified told Reuters.
“Roughly two thirds of Cobham’s revenues come from the US and they expected the delays to recover in the second half but that hasn’t happened — I can see 2010 estimates being reduced.”

Cobham, whose equipment helps military vehicles and aircraft such as the F-35 fighter plane communicate with one another, said its aviation services division had continued to deliver good organic growth but that the final three months of the year would be tough for the group.
“Organic revenue in the technology divisions was slightly down on the first nine months of 2009, and it is now unlikely that a significant increase in organic revenue growth for the full year will be achieved.”

Cobham said its commercial markets were stable but fragile.
“I expected a quite strong sales increase from the commercial side but its exposure to regional and business jets must have hit them,” the analyst said.

British aeroplane parts supplier Meggitt said it expected a tough second half due to weak demand for aircraft and a slow aftermarket, while UK aero engineer Hampson Industries’ order pipeline has taken longer than expected to turn into firm orders.

Britain last month cut its defence budget by 8 percent to help lower a huge budget deficit and said it would focus on fighting terrorism and cyber crime, while the U.S. is also reviewing its own defence spending policies.

Cobham welcomed Britain’s move to beef up its cyber security and said its strong position in high technology defence and security markets “reinforces the board’s confidence of continuing progress over the medium term”.