The headwinds that caused sausage-skin maker Devro to issue a profit warning this morning (22 October) are likely to reduce earnings into 2013, analysts have warned.
In a regulatory filing today, Devro said that while demand for its products has increased across a number of key markets – including Europe, the Americas and Japan – its profits will be dented by a combination of higher input costs, adverse currency movements and longer than planned commissioning of a recently installed plant.
Following the announcement, Panmure Gordon analyst Damian McNeela cut his fiscal 2012 profit before tax expectation by GBP2m (US$3.2m) to GBP41.9m.
“Despite the strong demand for its products Devro has experienced rising raw material costs, particularly from rising hide costs, due to a lack of availability, in Europe which the company expects to continue into full-year 2013,” McNeela said in a note to investors.
Panmure therefore also cut its profit expectations for 2013 by GBP2m, to GBP48.5m indicating 15% growth.
Likewise, Investec analyst Nicola Mallard reduced earnings guidance for fiscal 2012 and 2013.
Mallard noted that continued strong demand across developed and emerging markets is “encouraging”. This, she suggested, is particularly encouraging as the group plans to invest GBP35m in expanding capacity.
“However, there have been continued headwinds from rising raw material costs, commissioning new lines and currency. Hence, we reduce full year 2012 numbers by 3%. The cut to fiscal 2013 is smaller at 2%,” Mallard wrote.