Tomkins Feels Pressure of U.S. Slowdown and Weak Dollar; Plans to Sell Three U.S. Business Units

Car components and building products group Tomkins plc warned yesterday that the slowdown in the U.S. housing and automotive markets coupled with the weakness of the dollar would hit profits for the first half of this year. The warning came as the group announced a 7 percent fall in pre-tax profits last year to approximately $477 million and said it planned to sell off three American businesses with combined sales of approximately $973 million. Tomkins also said it would cut capital expenditure and transfer more production to low labor cost countries such as Mexico, China and the Czech Republic. The three businesses being sold off are Lasco Fittings, a supplier of industrial and building equipment, Trico, the windshield wiper company, and Dearborn Midwest, which makes heavy conveyor systems for car plants.

From The Independent

LONDON – Car components and building products group Tomkins plc warned yesterday that the slowdown in the U.S. housing and automotive markets coupled with the weakness of the dollar would hit profits for the first half of this year.

The warning came as the group announced a 7 percent fall in pre-tax profits last year to approximately $477 million and said it planned to sell off three American businesses with combined sales of approximately $973 million. Tomkins also said it would cut capital expenditure and transfer more production to low labor cost countries such as Mexico, China and the Czech Republic.

Tomkins shares fell by almost 3 percent as analysts cut their earnings forecasts. David Newlands, Tomkins chairman, said: "The overall outlook for our markets in 2007 is difficult particularly when compared to the first half of 2006. This, together with the weaker U.S. dollar, is expected to impact the comparison with the prior year."

The U.S. accounts for more than 70 percent of Tomkins’ sales and profits. The company’s automotive division is disproportionately dependent on Ford, General Motors and Chrysler — all of which have fared worse than their Japanese rivals in the U.S. market.

A sudden downturn in the U.S. automotive and housing markets last summer caused Tomkins to warn on 2006 profits and shed 3,000 jobs. Jim Nicol, chief executive, said he expected demand from the group’s biggest automotive customers to remain weak this year while the housing market was still "bleeding." These two factors would make trading conditions "challenging."

However, he said prospects were far better in the group’s Asian and east European markets and added that it was taking workers on in Northern Ireland where Tomkins makes remote tire pressure monitoring systems, which become mandatory on U.S. cars later this year.

Tomkins said it expected capital expenditure this year to be a little lower than the approximate $243 million it spent last year. It expects to incur $19 million in restructuring costs but Nicol indicated that job losses would be in the hundreds rather than the thousands.

The three businesses being sold off are Lasco Fittings, a supplier of industrial and building equipment, Trico, the windshield wiper company, and Dearborn Midwest, which makes heavy conveyor systems for car plants.

As a sign of its continued confidence, the company announced a 5 percent increase in the final dividend. Morgan Stanley cut its earnings forecast for this year by 17 percent but said speculation about a break-up of the business or buyout interest would help to support the share price.