Another profit warning from Balfour Beatty

<p>Shares of Balfour Beatty plunged today (6th May) after the company issued a profit warning and announced the departure of its CEO, Andrew McNaughton. The […]</p>

Shares of Balfour Beatty plunged today (6th May) after the company issued a profit warning and announced the departure of its CEO, Andrew McNaughton.

The UK-based construction group now expects pre-tax profit for 2014 to be in the range of £145m and £160m.

That’s mainly down to its UK construction business, where the company anticipates profits to be some £30m lower than expected.

Today’s trading update follows the company’s update in March, when it highlighted headwinds brought on by challenging economic conditions and operational issues in its UK construction business.

That contributed towards the company’s somewhat disappointing 2013 full-year results, which saw Balfour report a 78% drop in pre-tax profit at £32m.

Balfour’s challenges

While the company’s other divisions (professional services, support services and infrastructure investments) are seemingly faring relatively well, a combination of tough market conditions, increased costs and delays on certain projects are taking a toll on the company’s construction arm.

The broader construction sector has indeed been faced with headwinds over recent years. Balfour’s rival, Carillion, for instance, recently completed a scale back of its UK construction business – with an eye on chasing growth elsewhere – amid a slowdown in construction projects.

That said, Balfour has company-specific issues.

Indeed, also posing a challenge for Balfour has been what the company refers to as “poor operational delivery issues”.

The company took steps to address said issues last year – which included appointing new managing directors – but Balfour admits that it’s taking longer than expected for those changes to bear fruit.

All of this has sent the company’s shares plummeting 19% (at time of writing), bringing the company’s decline (since a peak reached in March) to around 30%.

Balfour’s strategic review

Meanwhile, Balfour also announced that it has undertaken a strategic review in a bid to create a “more focused group”.

That’s led to the company looking into the possibility of a sale of its US engineering consulting business (called Parsons Brinckerhoff), which it acquired in 2009 for around $630m.

Further such reviews and potential sales aren’t beyond the realms of as the company looks to reposition for growth.

Its current challenges, however, look set to continue in the near-term and the company’s shares will likely continue feeling that pressure.

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