LONDON - BAE Systems (IW 1000/167) shares tumbled on Thursday after the British defense group warned that earnings would shrink this year on cuts to government spending in its main market the United States.
The shares dove 8.01% in late London deals, also after BAE said that 2013 net profit had slumped 82% owing to an impairment charge on its U.S. business totaling £865 million ($1.441 billion, 1.052 billion euros).
In a further blow, reports overnight said that Germany had cancelled an order for additional Eurofighter Typhoon jets, which BAE makes in co-operation with aerospace giant Airbus Group (IW 1000/52) and Italian defense group Finmeccanica.
BAE Systems said that its profit after tax tumbled to £168 million in 2013 compared with £948 million a year earlier.
The group announced a 2% rise in sales for last year to £18.18 billion, with its underlying performance boosted by the so-called Salam deal with Saudi Arabia on improved pricing of Eurofighter jets sold to the kingdom.
"Following last year's non-recurring benefit from the Salam price escalation settlement, together with continuing US budget pressures, the group's reported earnings per share is expected to reduce by approximately 5% to 10% (this year) compared to 2013," BAE said in a statement.
Its share price dove 8.22% to 400.9 pence heading into the close on London's benchmark FTSE 100 index, which was up 0.08% at 6,802.30 points.
Analyst said it was not all gloom for BAE after the profits warning.
"The implied downgrade could matter today and in the next few weeks, but against a more certain backdrop, the lower pension deficit, the much lower than we forecast... net debt and the higher order backlog, we believe any impact will be short-term," said analysts at financial group Jefferies in a note to clients.
Highlighting underlying strength across the group, BAE added that profit before tax, interest payments and impairment charges rose 3.4% to £1.925 billion in 2013.
BAE Systems chief executive Ian King said that "overall, the group delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions."
He added: "We have started 2014 with good momentum ... Budget pressures in some of the group's larger markets are expected to prevail but BAE Systems has a broad-based portfolio.
"Our strong order backlog and robust balance sheet provide a solid basis for growth over the medium term."
BAE on Wednesday announced it had reached an agreement over the rising cost of providing Saudi Arabia with Eurofighter planes.
BAE, working in close co-operation with the British government, signed a £4.5-billion deal in 2007 to supply 72 Eurofighter jets to the kingdom.
Nearly half the planes have been delivered, but the contract has faced obstacles over rising costs. BAE, which has not given any precise figures regarding the deal, has said that cash settlement was expected to follow the new pricing agreement.
The Saudi Arabian deal is a boost for the British company after the United Arab Emirates pulled out of talks with Britain's government to purchase Eurofighter planes last December.
BAE is looking to push on after the collapse in late 2012 of a planned mega-merger with European aerospace giant EADS, which has since been renamed Airbus Group.
- Ben Perry, AFP
Copyright Agence France-Presse, 2014