Sims' shares dive after profit warning

25 May 2012, 6:21 pm   -   Source: AAP

Shares in scrap metal recycler Sims Metal Management have taken a hit in early trade on the back of a profit warning from the company.

Investors have punished metals recycler Sims Metal Management with a savage sell off after it warned of a large drop in expected earnings.

Sims said it expected earnings for the year to June 30 to be less than 85 per cent of those for the prior financial year, when it posted a $192.1 million net profit.

As recently as May 21, the consensus forecast amongst 15 polled investment analysts covering Sims Metal was that the company would outperform the market.

The past few months have been a time of falling prices for many major metals that Sims recycles amid concerns about Chinese growth and euro zone stability affecting the world economic outlook.

Iron ore prices fell to six-month lows this week, below $US130 ($A133.74) a tonne, from about $US150 ($A154.22) a tonne a month ago.

Chinese steel mills have been drawing down their stocks with production and economic growth slowing.

Sims shares on Friday closed down 75 cents, or 6.12 per cent, at $11.50 after the company blamed the continuation of global economic challenges for dragging its expected earnings lower.

Sims reported a first half loss of $556.5 million in February due mainly to its struggling North American business.

A weak North American metals market forced a $614 million writedown on acquisitions made before the global financial crisis.

Chief executive Daniel Dienst in February refrained from forecasting the company's financial performance, but said group's metals intake at the time had begun to recover, while a recovery in base metal prices had supported better volumes and margins.

With results for May and June still unknown, the company's financial statements might be adversely still be affected by further global economic events.

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