Transfield Services (TSE) and Boart Longyear (BLY) both warned yesterday of the damage the uncertainty from the slide in activity in the mining sector and other parts of the economy was doing to their revenues and earnings.
The warnings and updates though saw conflicting outcomes. Boart Longyear rose 8% (it had already been battered earlier in the year) during trading, while shares in Transfield fell 31.5 cents, or 24%, to an all-time low of 96.5 cents in early trade yesterday.
They then closed at 97.5c. The losses took the total slide for the stock to more than 60% since May 9. Boart shares closed steady at 78.5c after the optimism during the day petered out.
TSE YTD – Transfield Services joins the downgrade crew
The duo join companies such as Coffey International, Worleyparsons, ALS (the old Campbell Brothers) and others who have seen their shares weaken as news of the slowdown in spending by miners big and small has become more commonplace.
Transfield Services yesterday cut its profit forecast to as low as $62 million for the year to June in the wake of slowing resources spending ).
The company now expects to post a net profit before amortisation charges and write-offs of between $62 and $65 million, down sharply from the $85-90 million figure forecast earlier this year.
The company also announced it would shed 113 jobs. (Coffey said last week it was cutting 150 positions). Transfield says it is aiming to cut costs by more than $26 million. This is on top of the $29 million in savings revealed at the interim result announcement in February.
Transfield blamed the downgrade on the slowdown in the mining and resources sector, along with ongoing pressure from customers to cut costs and charges.
Reflecting the heightened business pressures, a further $5.9 million of restructuring charge is to be booked as it continues to reorganise the business, it said.
"In addition, ongoing uncertainty in commodity markets is resulting in the delay to, and deferment of a range of resources and infrastructure projects," the company said in yesterday’s ASX statement.
"More immediately, scope reductions and cancellations of works across the operations and maintenance sector are impacting earnings in the short term."
The company is confident it won’t need to go to shareholders for new money.
"The Group expects net debt to reduce in the medium term as a result of improved cash conversion, inflows of funds expected from the divestment of the non-core business portfolio, reduced capex, improved cash flows from underlying earnings and benefits from the new ERP continuing. Given the Group remains confident in its debt reduction programme, it does not foresee a need to raise equity." Capex will fall from around $150 million this year to $80 million in 2014.
Investors have been expecting Transfield to downgrade its earnings estimate for more than a week. The company has had an unfortunate history in recent years of underperforming and announcing a series of downgrades.
That explains why the shares fell 20% last week in expectation of yesterday’s announcement after the likes of Coffey and Worleyparsons revealed downgrades.
Meanwhile Boart Longyear, which has cut more than 1,000 jobs from its businesses in the past four and a bit months, warned shareholders that the outlook for mining services remains tough.
CEO Richard O’Brien told shareholders at the company’s annual meeting in Melbourne that utilisation rates for its drilling rigs could fall as much as 20% compared to last year.
BLY YTD – Boart warns on full year softness as well
Boart provided earnings guidance at the lower end of analyst forecasts – which have already been slashed repeatedly as the deterioration in the contract mining sector has accelerated.
“The downturn in capital and exploration spending in the mining sector globally has clearly reduced the demand for drilling services and products,’’ he said.
Boart said yesterday that since announcing its full-year results in February, commodity prices have continued to trend downward and expected improvements in drill rig utilisation rates have not materialised.
"Recent commentary from major miners and industry analysts suggest exploration expenditure is down over 20 per cent compared to the same time last year," Boart said.
"A number of major mining companies have announced that projects have been deferred, in some cases indefinitely."
In April analyst forecasts for Boart’s earnings before interest, tax, depreciation and amortisation (EBITDA) were in the range of $199 and $271 million.
Revenue forecasts were in the range of $1.466 and $1.726 billion.
"Based on current industry conditions, the company expects 2013 revenue and EBITDA will be at the lower end of the range of current analyst forecasts," Boart said.
BLY CEO Presentation to AGM
