Cobham concerned over US fiscal cliff Cobham became the second British defence company this month to warn that earnings would be below expectations because of uncertainty surrounding defence spending in the US. Automatic US spending cuts and tax rises are due to come into effect at the end of this year and will result in $24bn of cuts to next year's defence budget and $51bn in 2014 unless Congress can reach agreement with President Barack Obama to avoid the so-called fiscal cliff. Shares in Cobham, which specialises in the design and manufacture of communications and tracking equipment, fell 6 per cent on Monday after it said 2013 revenues - excluding acquisitions and disposals - would decline by "low-to-mid single-digits." Before Monday's profit warning, analysts had pencilled in underlying pre-tax profit of £276m from revenues of £1.8bn in 2013. That compares with underlying pre-tax profit of £328m from revenues of £1.85bn in 2011. The company has yet to report results for financial 2012 which ends next month. The profit warning follows a similarly gloomy statement from Chemring, which earlier this month issued its second earnings downgrade and led to the collapse of takeover talks with Carlyle, the private equity firm. Cobham, which also makes long-range refuelling facilities for military aircraft, said: "The US defence and security market remains challenging with the market continuing through the down cycle, driven by the overall fiscal pressure the US faces but with a lack of political consensus on budgets." Although Cobham's exposure to the US defence sector has fallen to 40 per cent of total revenues - from 48 per cent in 2011 - the FTSE 250 group is still heavily reliant on military spending. Oliver Sleath, analyst at Credit Suisse, said that last week's US elections further muddied the waters for Cobham. The majority of Cobham's US defence exposure is to new platform procurement, which is seen as an easy target for cuts. The sheer scale of headwinds emerging in Cobham's core end-market will largely mitigate other growth opportunities," he said. Irrespective of the actual level of cuts emerging over the next six months, the fact that the Republicans retain control of the House means we foresee an uncertain defence outlook persisting through the next administration. Cobham has responded by ramping up its commercial side, which contributes one-third of group revenues. In April, Cobham paid £281m for Thrane & Thrane, the Danish satellite telecommunications equipment maker.