LONDON (Reuters) - British satellite communications company Inmarsat (ISA.L) said it had been hit by U.S. government budget cuts in the first quarter, causing earnings to fall short of expectations.
The company, which provides communications to shipping, aircraft and remote locations worldwide, said it would respond by cutting costs, both for its U.S. government business and across the group.
Inmarsat’s U.S. operations, which also include private sector customers, contributed two-fifths of group revenue last year.
“In our U.S. Government business unit, we have seen a sudden and pronounced deterioration in both demand and profitability, in each case principally related to U.S. budget cuts,” Chief Executive Rupert Pearce said.
Chief Financial Officer Rick Medlock said about $7 million of revenue in the group’s managed network services business had been lost in the quarter, most of which would have fallen through to the bottom line.
“We are expecting this to continue for the foreseeable future,” he said on Thursday.
“We will take cost action against this, and we expect the margin hit to be ameliorated as we go through the year.”
The group posted core profit, excluding the impact of a failed U.S. airwaves deal, of $154.2 million, down from $157.7 million a year ago and short of the $156.9 million average forecast from analysts in a poll supplied by the company.
Pearce said Inmarsat’s managed services business, where competition was fierce, was affected by the cuts.
Other services that it supplied to the U.S. government, such as for special forces and the intelligence communities, had protected budgets and were therefore more resilient, he said.
Shares in the company, which reached a more than two-year high of 749 pence on Wednesday, were trading 8.3 percent lower at 688 pence by 6:16 a.m. ET on Thursday.
Analysts at Jefferies said they expected the average forecast for core earnings this year of $648.6 million to fall by about 5 percent.
Aside from its U.S. government contracts, Pearce said Inmarsat posted a strong quarter in shipping and aircraft.
It posted a 3.7 percent rise in revenue for its core maritime, aviation and land business to $184.6 million, broadly in line with expectations.
The company stuck to its forecast for revenue for the core business to rise by between zero and 2 percent this year.
A deal with LightSquared, which wanted to build a U.S. mobile network using some of Inmarsat’s airwaves, failed last year when the ailing telecommunications company bank rolled by hedge fund manager Philip Falcone filed for bankruptcy protection.