Today’s Falling Knife: Smiths Group Plc Issues Profit Warning

Shares in Smiths Group (LSE: SMIN) fell over 5.5% in early trade after warning over profits from its Detection division.

The engineering firm stated that “the final outcome of three contractual commitments entered into prior to 2010 are anticipated to be materially adverse to previous expectations”, while operating margin was also likely to be affected by the initial under-recovery of overheads at new manufacturing sites.

The division comprises around one fifth of revenue generated for the company as a whole and, as a result, headline operating profit for the group overall is likely to be up to £15m below current forecasts for the financial year ending 31 July 2013. Additional provisions will also be required for legal disputes.

Elsewhere, trading for Smiths Group’s remaining divisions was broadly in line with expectations. Some investors will be asking whether today’s dips represent a buying opportunity, bearing in mind that the company has outperformed the FTSE 100 over the last year by around 10%.

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> Sam does not own shares in Smiths Group.