Profit warnings trigger ‘crisis levels’ of share price falls

UK quoted companies issued 68 profit warnings in Q3 2018, seven fewer than the same period of 2017. However, companies issuing profit warnings saw their share prices fall by an average of 21%, a drop comparable to figures seen ten years ago at the height of the financial crisis, according to EY’s latest Profit Warnings report,

In a further worrying sign for the UK economy, the percentage of quoted companies warning in the last 12 months has increased to 15.6% (206) compared to 14.4% (191) a year ago, according to the report.

While consumer sectors still dominate, with General Retailers issuing 8 warnings and a third of the sector warning in the year-to-date, profit warnings are starting to spread back into industrial and financial segments of the economy. The report finds that the FTSE sectors with the highest number of warnings in Q3 were: General Retailers (8), Travel & Leisure (7), Support Services (7), and Financial Services (6).

Alan Hudson, EY’s head of restructuring for UK & Ireland, comments: “Increasing capital market volatility and crisis-level investor reaction to profit warnings underlines a growing market concern about what comes next and how ready companies are to face the unknown. With so much of the UK and global economic and political outlook on the line, investors clearly want to be backing the fittest, most agile companies.”