Tieto profit below expectations in Q2

HELSINKI, July 18 Fri Jul 18, 2014 1:10am EDT

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HELSINKI, July 18 (Reuters) - Finnish IT services provider Tieto on Friday reported a surprise fall to its quarterly earnings as customer insourcing hit its product development service business.

Tieto's second-quarter operating profit, excluding one-off items, was 30 million euros ($40.6 million), less than analysts' average expectation of 34 million and a tad short of 30.6 million euros posted a year earlier.

Second-quarter sales fell to 386 million euros from 417 million in the same period a year earlier, and were just below the Reuters poll forecast average of 389 million euros.

The company has been slashing costs over the past year to cope with weak demand, particularly from the telecommunications sector. ($1 = 0.7394 Euros) (Reporting By Jussi Rosendahl; Editing by Sakari Suoninen)

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