DCC posts profit warning as mild weather takes toll
Distribution group DCC has slashed its profit outlook for the current financial year as mild winter weather in the UK crimps demand for home heating oil.
DCC controls about 16pc of the UK's home heating oil market and in the previous two winters had benefited from record freezing temperatures.
The company had already been basing its full-year financial assumptions on a more normal winter between 2011 and 2012, but it said that demand for its energy products has been lower than had even been anticipated.
The overall volume of energy-related products sold in the quarter to the end of December was 12pc lower year-on-year. DCC's home heating oil volume sales are down 22pc.
"The substantially weaker demand in a very competitive market negatively impacted gross margins and these factors, together with the effect of a predominantly fixed operating cost base, had a significant impact on DCC Energy's profits in the year," the company said in a trading update.
DCC said that full-year profits for its energy division would be within the €75m to €90m range. Group operating profit will now be as much as 17pc lower at between €175m and €190m. It had previously been guiding full-year profits of about €212m and had expected operating profits to fall by about 7.5pc and earnings per share to recede about 5pc.
Adjusted earnings per share will now also be as much as 18pc lower.
"The absence of any sustained cold weather this winter along with the difficult economic backdrop and high oil prices are likely to continue to impact adversely both volumes and margins for energy products in the quarter," added the group.
In the previous winter, the cold weather helped DCC's energy unit deliver €17m in additional profits due to high demand for home heating fuel.
Last November, DCC chief executive Tommy Breen said he was keeping his "fingers, toes and everything crossed" for a repeat performance.
Goodbody Stockbrokers analyst David O'Brien said that downgrade by DCC is "relatively material" despite investors having already pencilled in the impact of the mild winter.
"Lower profit will mean higher net debt, but with only modest gearing the group retains ample firepower to effect further deals," he said.
DCC said it expects a return to growth in the financial year that ends in March 2013.
Shares in DCC declined sharply in early trading in Dublin, but quickly recovered much of the lost ground. They closed down 34.3 cent, or 1.86pc, at €18.05.