Profits warnings have spiked at UK-listed firms amid soaring input cost inflation, with pressure on food producers’ bottom lines the most severe for more than 20 years.
In total, 86 warnings on profit were issued in the third quarter across sectors, a 69% rise year on year and a 34% increase from Q2, according to EY-Parthenon. It’s the highest number of Q3 warnings since the financial crisis in 2008.
Consumer-facing companies issued 44 warnings – the highest quarterly total since the start of the pandemic.
Sectors with the most warnings in Q3 were retailers (11), travel and leisure (nine) and food producers (seven) – with the latter at a 21-year high.
Cost pressures featured in 70% of all consumer sector warnings, with many reporting a struggle to pass on price increases to customers. Falling consumer confidence and changing buying behaviour featured in 50% of warnings.
Shares in Fever-Tree were hit by a profits warning in July as the premium tonic producer struggled with rising costs, while shortages in labour and glass impacted its US business. Last month, Hilton Foods Group warned profits would come in below expectations as the cost of raw material spiked, with the meat producer also being hurt by rising interest rates.
Associated British Foods, which owns Primark, also surprised investors in September as rising energy costs, a strengthening dollar, falling consumer confidence and a decision to keep prices competitive hurt its bottom line. It follows profits warnings from online retailers Asos and Booho.
Jo Robinson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, said: “Businesses are facing an unprecedented combination of headwinds including rising costs, slowing demand and excess supply, making it increasingly difficult to balance competing priorities.”
More than 40% of FTSE retailers and more than 60% of the FTSE personal care, drug and grocery stores sector issued a profit warning in the last 12 months.
Both sectors, which were already facing spiralling costs, supply chain and labour challenges, are now also contending with falling consumer confidence. More than 70% of retailers issuing a warning in Q3 referenced weakening consumer confidence, while inventory challenges have also intensified as falling demand creates surplus stock issues.
The retail sector has also been grappling with long-term structural change. Most retailers issuing warnings in 2022 operate exclusively or mostly online and are feeling the impact of the post-pandemic shift back to store sales on top of increased delivery costs and product returns.
Robinson added: “This quarter, we have seen a significant increase in companies issuing their third or more warning in a 12-month period.
“With so many uncertainties in the outlook it’s vital that companies develop resilience and demonstrate a clear understanding of how their business will adapt under different geopolitical and economic scenarios.
“Increasing uncertainty means events could move quickly for companies that show signs of stress – turning the situation around requires a swift response, sustainable and defendable forecasts, and the building of stakeholder trust in management.”
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