Shares in DCC fell by 9 per cent yesterday after the company warned that trading in its information technology business deteriorated further in July and August.
The division, which accounted for 21 per cent of group operating profits last year, experienced a difficult first-half which DCC now expects to show up in a year- on-year decline of about 45 per cent in the division's interim operating profit.
Although DCC's other divisions continue to perform broadly in line with expectations, the worsening conditions in the IT distribution business are expected to hit the group's earnings per share in the current year, which ends in March 2006.
The company said yesterday it now expects mid-single-digit growth in adjusted earnings per share (EPS) this year compared with market expectations of a low double-digit rise.
DCC's profit warning comes just two months after the group told shareholders at the annual meeting that it expected full-year EPS growth to be ahead of market expectations and into double digits, prompting analysts to upgrade.
The market responded negatively to yesterday's turnaround, knocking the shares back by €1.69, or 9.2 per cent, to €16.70.
Analysts set about scaling back their forecasts for adjusted earnings per share, which had ranged up to 154 cent but are now expected to be closer to 145 cent per share. Operating profit forecasts for the IT division are also being cut to about €21.5 million from €29 million.
However, DCC said its energy, healthcare, food and beverage and environmental divisions are expected to perform broadly in line with market expectations.
"The board expects that the group will resume double-digit earnings growth in the seasonally more important second half of the current financial year," the company said.
For the first half, however, EPS is expected to be down by about 10 per cent, due to the poor performance of IT allied to a seasonally loss-making performance from DCC's Shell Direct UK business.
A sharp decline in UK consumer expenditure on technology and entertainment products in July and August was one of the reasons behind the poor performance of the IT division, DCC said.
The company also experienced very difficult trading conditions and severe product price deflation in the hardware market, which hit Micro Peripherals and Distrilogie, its UK and continental European distribution businesses.
However, a first-time contribution from the recently acquired DVD and computer game distributor, Pilton, should help second-half profits in the IT division to come in at a broadly similar level to last year's weak second half.
