The European slowdown and stuttering US recovery are proving too much for electronics parts distributor Electrocomponents (ECM). It says that full-year results will miss the City's expectations as first-half adjusted pre-tax profits came in at around £40m, short of last year's £59.4m. Declining sales in the US and key European markets prompted broker Panmure Gordon to change its recommendation to 'sell', as it reduced its forecast for full-year adjusted pre-tax profit by 10 per cent to £106m, giving EPS of 16.8p.
The company's bosses are confident they can deliver a full-year result slightly below £110m, with a return to sales growth in the second half and improving profit margins. Still, they will have their work cut out – the group's gross margin was 1.2 percentage points down on last year after heavy discounting and more sales of lower-margin products. Broker Espirito Santo also thinks management's hopes look ambitious given the economic backdrop and the scale of the first-half drop.
