Company says conditions have deteriorated in recent weeks and this will hit its performance
The engineering sector has been under pressure since warnings from Cookson and Morgan Crucible in recent days, with analysts looking out for the next shoe to drop.
GKN was a candidate for the next poor update and it has lived down to expectations. The automotive and aerospace group has fallen nearly 4%, after it said European markets continued to be challenging, offset by better performances in China and the US. The company said:
Macroeconomic conditions have deteriorated in recent weeks and some softening in order books is now evident, particularly regarding European automotive and industrial markets.
The fourth quarter is anticipated to show the usual seasonal improvement although the softening markets are expected to have some impact on performance.
The slump in European car sales announced this morning will have done little to lighten management's mood. Andrew Gollan of Investec kept his hold recommendation on GKN but cut his price target from 240p to 224p and said:
Despite markets conditions that were "broadly in line with expectations" driveline suffered more than anticipated from weakening automotive demand (particularly Europe) and associated "operational issues". The US and China have been more robust, as has aerospace, but general trends in auto leads us to be more prudent. We are expect to cut a further 5%4-6% from 2012's estimated profit (following 3% last month), implying earnings per share of around 24.3p. The stock is likely to weaken further today.
Indeed. It is currently down 7.9p at 204p.
Overall though the market is moving higher, helped by a positive performance on Wall Street following better than expected US retail sales figures. Spain spelling out how a bailout request might work and hopes of a resolution to the Greek budget talks have both helped the FTSE 100 climb 22.34 points to 5827.95.
In a risk on day so far, banks and miners are both moving ahead. Lloyds Banking Group is leading the risers, up 1.09p to 41.41 while Kazakhmys has climbed 13.5p to 703.5p.
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