LONDON British aero electronics group Cobham (COB.L) cut its 2012 earnings forecast and warned U.S. elections and political squabbling over budgets were likely to keep the outlook for U.S. defense spending uncertain into next year.
Shares in Cobham, whose equipment helps military vehicles and aircraft communicate, fell as much as 6.6 percent in early Wednesday trading.
Earnings per share were likely to be similar to last year, excluding divestments and assuming any hiatus in U.S. order placement was no more severe than the usual delays in approving U.S. government budgets, the company said.
It had previously forecast "some underlying progress" in full-year earnings.
"Disappointing," said Investec analyst Andrew Gollan.
"The order book is down 8 percent underlying and visibility remains poor in the core defense and security markets."
Defense firms have seen contract awards delayed and some existing deals cancelled as politicians in the United States, the world's biggest spender on military equipment, argue over how to cut the country's deficit.
Defense contractors including Northrup Grumman Corp (NOC.N) and General Dynamics Corp (GD.N) have reported lower second-quarter earnings amid the uncertainty.
"We can and will outperform the U.S. defense and security market over the medium term, because our technological capabilities overlap significantly with the Pentagon's strategic defense priorities, areas such as unmanned systems, electronic warfare and deployment of special forces," Cobham chief executive Bob Murphy said.
"But the short-term outlook for this market is less clear. For this reason we are approaching 2013 with a lot of caution."
At 6:35 a.m. EDT (1035 GMT), Cobham shares were down 5.7 percent at 224.9 pence, the biggest decline by a midcap UK stock .FTMC.
Cobham is shifting its focus to the fast-growing commercial aircraft market to offset pressure in the defense sector, where debt-laden European governments are also cutting back.
"We are underweight in commercial versus overweight in defense," said Murphy, who has been in the job for less than two months. "I would like to see us grow the commercial side of our business so that we can take more advantage of a market that has good natural growth prospects through the cycle."
The commercial sector accounted for 32 percent of first-half revenues versus 40 percent for U.S. defense and security markets and 28 percent for non U.S. defense and security markets.
Suppliers to the civil aerospace sector have been boosted by order book growth at planemakers Airbus EAD.PA and Boeing (BA.N), which expect combined deliveries for 2012 to be well ahead of last year.
Cobham reported an underlying pretax profit of 142 million pounds ($222.2 million) for the six months to the end of June on 5 percent lower revenues of 843 million pounds.
Analysts were expecting first-half pretax profit of 140 million pounds, according to Thomson Reuters I/B/E/S data.
Order intake was down 21 percent at 768 million pounds and the order book stood at 2.5 billion pounds.
Cobham earlier this year acquired Danish communications equipment maker Thrane & Thrane, and Murphy said more deals could be on the cards.
"You shouldn't be surprise to see other acquisitions similar to Thrane and Thrane," he said.
Cobham increased its interim dividend 33 percent to 2.4 pence per share.
($1 = 0.6390 British pounds)
(Editing by Mark Potter)