UK-listed companies issued 84 profit warnings between July and September 2024, the highest quarterly total for two years, according to EY-Parthenon’s latest Profit Warnings report.
The report found that profit warnings from UK-listed companies rose 11% compared with Q3 2023, and the proportion of those that have issued a warning over the last year now stands at 19.2% – the highest rolling 12-month percentage since the pandemic and, before that, since 2001.
Leading factors behind Q3’s profit warnings included contract and order cancellations or delays, cited in 38% of warnings, the highest percentage for this reason in 15 years. Falling sales also triggered a third (33%) of the quarter’s warnings.
Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said: “Uncertainty has been a persistent feature of the business environment for several years now but, unusually, this latest surge in warnings wasn’t preceded by a sudden economic downturn or one-off event.
“This uncertainty seemed to intensify over the summer as companies awaited the new Chancellor’s Autumn Budget and were also affected by ongoing heightened geopolitical tensions. The latest profit warning data gave us a real-time indicator of this shift in business sentiment and the impact this can have on company earnings.
“Time will tell whether this rise in profit warnings is a temporary spike or indicative of a longer-term trend, but against a volatile macroeconomic and policy backdrop, coupled with profound changes in technology and consumer behaviour, abrupt adjustments to earnings expectations appear increasingly likely.
“In this environment, companies and their stakeholders must be vigilant in proactively identifying and addressing emerging issues before they escalate. The restructuring landscape may be rapidly evolving, with innovation often offering opportunities for value preservation, but prompt action is still crucial to secure the best possible range of outcomes.”
Industrials and technology lead the rise
The FTSE sectors with the highest number of profit warnings in Q3 were Industrial Support Services – which encompasses business service providers, industrial suppliers and recruitment companies – with 10 warnings issued, and Technology Hardware & Equipment, with eight.
Customer reluctance to commit to new contracts and orders was particularly pronounced in the Industrial and Technology sectors, where over 90% and 70% of the warnings, respectively, were related to either lower orders or contract delays and cancellations.
Dan Hurd, EY Partner, Turnaround and Restructuring Strategy, added: “The FTSE Industrial Support Services is heavily reliant on business and public sector spending, making it particularly vulnerable to economic uncertainty and cost-cutting measures.
“With 23 warnings issued so far this year, companies have been grappling with a drop in sales, budgetary pressures and, as reported again in Q3, challenging negotiations with customers.
“The 64% quarterly rise in industrials profit warnings also reflects the pressure we’ve seen in the commercial aerospace and automotive sectors. While end demand is stable in aerospace, the sector is having to cope with the impact of industrial action, coupled with supply chain and production issues at major airline manufacturers.
“In the automotive sector, demand is under greater pressure, with annual car sales in Europe still materially below pre-pandemic levels, and OEMs having to navigate regulatory requirements to increase the mix of electric vehicle sales. This is having a disruptive impact on the automotive supply chain, and the OEMs are now also facing the additional challenge of having to keep an eye on the resilience of their dealer networks.”
A high number of warnings were also seen across FTSE Software and Computer Services (seven), Travel & Leisure, Investment Banking & Brokerage, and Media (all with five).
