LONDON -- Shares in Electrocomponents (ISE: ECM.L) plunged 8% to 202 pence after the distributor of the Raspberry Pi computer warned that full-year profits would be below market expectations.
The company, which operates under the banners of RS Components in the U.K. and Allied Electronics in the U.S., said first-half sales are likely to be flat as a result of challenging economic conditions.
Electrocomponents said, "Group gross margin is likely to be around 1.2% points below the prior year, affected by the increased use of customer discounts, stronger performance from lower-margin technologies, including Raspberry Pi, and adverse foreign exchange movements." It also said operating costs are expected to be 4% higher. However, it added that the additional cost will be skewed to the first half. Consequently, pre-tax profit for the first six months of the year comes to around 40 million pounds compared with 59 million pounds last time.
That said, Electrocomponents believes that second-half profits should benefit from actions to improve operating margins. Nevertheless, it reckons that given the worse-than-expected first-half performance, and assuming no change in market conditions, it still expects full-year headline pre-tax profits to be lower than market forecasts, which call for about 110 million pounds.
This morning's trading update from Electrocomponents illustrates how shares can sometimes disappoint investors -- especially income seekers -- given the company's attractive prospective dividend yield of 5.5%. If you're on the lookout for more reliable income shares, look no further than ace stock-picker Neil Woodford, who has a record of avoiding such losers. Indeed, Woodford has delivered an impressive 347% total return during the 15 years to the end of 2011. You can discover the shares he now holds -- and which losers he has avoided -- within "8 Shares Held By Britain's Super Investor." You can download this free Fool report about market legend Woodford today, but hurry -- the report is available for a limited time only.
Investing is by no means easy in today's uncertain economy. That's why we've published "Three Top Sectors" -- our guide to three favorable industries. This free report will be dispatched immediately to your inbox.
Further Motley Fool investment opportunities:
The article Electrocomponents Creamed by Raspberry Pi originally appeared on Fool.com.
David does not own shares in Electrocomponents. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.