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BAE dives after warning
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January 10, 2001: 8:48 a.m. ET
Defense firm reveals $610M charge against 2000 profit; stock plunges
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LONDON (CNNfn) - BAE Systems warned cost overruns on an airplane contract and declining armaments orders would put a £410 million ($610 million) dent in profit for 2000, sending its stock tumbling.
The British defense and aerospace manufacturer racked up £300 million in extra costs linked to a contract for the £2 billion Nimrod maritime patrol aircraft, the company revealed Wednesday. It also said it would cost another £110 million to cut capacity to reflect a shortfall in orders from the British government.
BAE (BA-) stock plunged 26.4 percent to 262 pence in midday trade, after earlier diving as much as 28 percent to a four-year low of 254. The slump cut the market capitalization of Europe's second-largest defense firm to £7.4 billion. 
"We suspected this was coming, though the numbers are slightly worse than we had thought," analyst Clive Forestier-Walker at CCF Charterhouse told CNNfn.com. He added that underlying trading at the firm was also unimpressive, saying he would maintain a "reduce" recommendation on the stock.
Dresdner Kleinwort Wasserstein, broker to BAE, slashed its 2000 earning estimate to 19.5 pence a share from 27.5 pence, Reuters said. Analysts at DKW declined to comment on the report.
BAE admitted the near-term outlook had become "more difficult", indicating declines in overall profits for 2000 and 2001, although earnings should rise again in 2002. The problems of the defense business are being partly offset by the success of Airbus Industrie, the commercial plane maker in which BAE Systems has a 20 percent stake.
BAE Systems was formed in 1999 by the merger of the defense business of Marconi PLC (then called General Electric Co. PLC) and British Aerospace. In its statement Wednesday the company said the integration of the two units was progressing well and was on track to deliver extra profits of £275 million a year by 2002.
In part, the company blamed the difficulties at its major programs division on slowing orders from the U.K.'s Ministry of Defence, as well as budget constraints among other customers.
 BAE stressed out that was in transition between a period when profits relied heavily on older contracts and a time when newer programs begin to kick in. Production should pick up in 2004 with the development of the Eurofighter Typhoon.
The programs division is crucial to the company's fortunes because it includes its development of major technological platforms, which should later form the basis of lucrative long-term contracts to provide support and servicing to buyers of its weapons systems
"The measures we have announced... will strengthen our business to bridge the period between major Tornado and Typhoon production, dealing decisively with legacy assets and accelerating our transformation," Chief Executive John Weston said in a statement.
BAE also said there would be cuts in the worldwide payroll of 120,000 at the company and its joint ventures.
"On the issue of head count, inevitably there will be some losses," Charlie Miller, spokesman for BAE told CNNfn.com. "Where and when that comes we can't say." 
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BAE Systems
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