FTSE 100 beverage can manufacturer Rexam (REX) was crunched by the market, down 4.5% at 444.2p, after warning its interim and full-year numbers would fall short of earlier guidance.
Given the usual reaction to profit warnings the decline may look relatively modest and this could reflect relief that management has bowed to investor pressure and put its healthcare division up for sale.
The £3.5 billion cap's core business lies in making cans for companies such as Coca-Cola (KO:NYSE) and Carlsberg (CARL:CPH) but it also has an arm which manufactures syringes, asthma inhalers and other packaging products for the pharmaceutical industry. The latter accounts for around 10% of annual revenues but has been hit by the loss of key contracts and its underlying operating profit fell more than 26% to £48 million in 2012.
Broker Cantor Fitzgerald, which reiterated its 'hold' rating on the stock following today's update (putting its price target under review), says any sale would be a good move. 'In our view, the disposal of this non-core business is a positive step for Rexam, allowing management to focus on its principal beverage can business.'
Rexam has form in this regard; in January it completed the divestment of its personal care division for £452 million and agreed to return £395 million to shareholders. Although the potential price for healthcare business is dependent on a number of different factors, by way of indication the personal care division achieved a smaller underlying operating profit of £33 million in 2012.
The implementation of cost saving initiatives has not been sufficient to outweigh fragile top-line growth with global can volumes growth decelerating to 1% in the first half of 2013 compared with 6% in both halves of 2012.
Although the 100 billion beverage can-a-year market in the US remains strong, the group has experienced weakness in Brazil, where it has 60% market share, and Western Europe. The company made no mention of whether its return on capital employed (ROCE) target of 15% would be affected but said it still expected 2013 results to show improvement over last year.
