UPDATE 2-Lydall sees lower Q4 results, shares tank

* Sees lower Q4 results due to weak automotive market * Q3 EPS cont ops $0.10

* Q3 sales down 8 percent

* Shares fall 25 percent (Recasts; adds conference call details, share movement)

By Eric Yep

BANGALORE, Nov 3 (Reuters) - Diversified manufacturer Lydall Inc (LDL.N) posted a 8 percent drop in third-quarter sales and warned that current-quarter results would be lower than a year ago as a weak North American automotive market weighs, sending its shares down 25 percent.

Results for the fourth quarter will also be impacted by weakening demand in Europe, the company, which makes specialty engineered automotive thermal and acoustical barriers, said.

About half the company's business comes from the automotive sector, which has been severely hit by the economic downturn.

Lydall said it expects to record a pre-tax charge of 6 cents a share, related to the previously announced consolidation of its North American automotive business, during the fourth quarter.

Even in the best of times, Lydall's automotive business was the less profitable segment, portfolio manager John Walthausen of Walthausen & Co said by phone. However, he was bullish about its performance materials business, which makes filtration and thermal materials for various industries.

Lydall's performance materials business posted a $1.3 million rise in third-quarter sales. Sales at the vital fluids business, which supplies to the medical sector, also reported increased net sales of $0.7 million.

"Some of the company's best businesses are clearly showing strength and are in good shape," Walthausen said.

The company has the balance sheet and cash to weather the downturn, allowing it to continue its strategy of developing new products and new markets, as well as make strategically fit acquisitions, he said.

Net income for the third quarter ended Sept. 30 was $2.7 million, or 16 cents a share, up from $1.9 million, or 11 cents a share, a year earlier. Sales came in at $71.1 million.

Lydall saw a particularly weak demand at its thermal acoustics segment, where sales fell 12 percent to $35.8 million.

Shares of the company fell to a low of $5 before paring some losses to trade down $1.37 at $5.28 Monday afternoon on the New York Stock Exchange.

For the alerts, please click [ID:nWNAB6495] (Additional reporting by A.Ananthalakshmi in Bangalore; Editing by Himani Sarkar and Deepak Kannan)