The huge publicity over the weak Qantas result and job cuts overshadowed a number of other weak reports and warnings yesterday. Transfield Service was one such weak reporter, while yesterday afternoon, a sharp profit downgrade warning from ALS, the country’s biggest testing group servicing the resources sector, was missed by many, but not all investors.
That’s why ALS (ALQ) shares ended up tumbling nearly 11% to $7.50 after the company warned of a sharp downturn – around 25% – in full year earnings for the year to March 31.
The company blamed the tough times in the mining and resource sectors. But what also didn’t help ALS was the very cold and snowy winter across much of the US midwest and east and southern states, including the ‘polar vortex’ when intense, freezing air, snow, ice and sleet moved down from northern Canada into the US.
That cost the company 16 days of lab work in the US oil and gas sector in January. At the same time the US shale oil and gas boom is transforming from intense exploration, which needs lots of testing services, to production, which needs less work.
As a result of these and other factors, net profit for the year is now expected around $160 to $170 million down nearly 26% on the $227 million profit for 2012-13.
ALQ 1Y – Resource downturn, US freeze hits ALS earnings
ALS told the market that in an outlook commentary late last November, it had forecast third quarter earnings (to the end of December) would be $47 million "in line with the performance in each of the first two quarters".
"No forecast was provided for the fourth quarter to March 2014 due to uncertain market conditions in what is traditionally the off-season for most of ALS’ business streams," the company said.
ALS said yesterday that the December 2013 quarter’s after tax group net profit was $44 million, "in line with the forecast result".
"Trading in the final (its 4th quarter) quarter is being impacted by continuing tight market conditions in the minerals and coal sectors; very abnormal weather conditions in North America due to the influence of the polar vortex which has led to 16 days of lost laboratory operations in January and February; and a shift in North American Oil & Gas drilling activity from exploration to production drilling.
"The quarter has also seen further restructuring costs, bringing full year one off restructuring costs to approximately $12 million before tax.
"The company remains confident that its current diversification strategies, operating model, and focus on cost management and right sizing the businesses for the current market, position the company strongly for future growth.
"In particular, the company is pleased that the EBIT margin for the Geochemistry business for the first ten months of the current financial year remains strong at 27% in an environment where revenues have fallen by one third.
"Subject to final audit, the after tax profit including unusual items and excluding amortisation of intangibles for the year ended 31 March 2014 is expected to be in the range of $160 to $170 million," the company said.
The Company’s preliminary final results for the year ended March 31, 2014 will be released to the market on 27 May.
