Waste Management International, the landfill and rubbish disposal group, warned yesterday that earnings this year would be below 1994's pounds 104m.
Despite the warning, the shares, among the stock market's worst performers this year, rose 3p to 296p on the belief that all the company's bad news had already been discounted.
The company, a subsidiary of WMX Technologies of the US, blamed "structural problems" in France and Italy. Nigel Wilson, finance director, said there had been a combination of factors, including permitting delays, changes in legislation, union negotiations, alterations to municipal contracts in Italy and increases in interest rates.
The market remains difficult in France, but in Italy moves are being made "to simplify the management process".
Waste Management has seen its shares nearly halve from over 500p last December and analysts ascribed the unusual movement in the price yesterday to the fact that the market was expecting the warning.
One said: "The fact that profits will not match 1994 will not come as a particular surprise". He expected recent buyers to wait until the price climbed over 300p before selling.
The company, which floated at 585p in April 1992, has angered many of its original shareholders by not paying a dividend since. However, yesterday's warning came alongside better tidings.
Although pre-tax profits slipped from pounds 82.2m to pounds 71.9m in the six months to June, there was a turnaround in cash flow between the second and third quarters of the year. The improvement from a pounds 32m outflow to a positive figure of pounds 33m holds out the prospect that dividends may eventually become payable.
Waste Management also halted the decline in operating margins which it has been experiencing for several quarters, although France remained a big problem, with the decline in margins there said to be "substantial". Across Europe, Waste Management had to cope with a 1.8 per cent fall in prices and a 0.5 per cent drop in volumes, year-on-year.
The company said the business trends from the first three months of the year continued into the second quarter, with a good performance in solid waste and weak pricing in hazardous waste. UK operations, which include a joint venture with Wessex Water, are said to have benefited from a number of initiatives. Quarterly pre-tax profits edged down from pounds 43.6m to pounds 38.2m, on turnover that advanced from pounds 287m to pounds 298m.Reuse content