In news that will see its shares under pressure today, contractor Downer EDI (DOW) has shocked by cutting its earnings forecast for the current year and warning of tougher times ahead.
The company this morning reported a 2.7% slide in net profit to $210.2 million for the year to June, on a 4.8% fall in revenue to $7.02 billion.
But the company shocked analysts when it said it was targeting a fall for the 2015-16 financial year to a figure of around $190 million, a fall of nearly 10%.
“Providing guidance for the 2016 financial year has proven more difficult than in the past five years,” Downer directors said this morning in the profit announcement.
“There is weakness and a high degree of uncertainty in a number of our end markets, particularly resources-based construction and mining,” they said.
"We expect the current low levels of mining related capital expenditure to continue through 2016 and customers across the board to focus on costs and efficiency as the broader economy feels the impact of low commodity prices. In this environment, it is difficult to predict the flow of uncontracted revenue which is slightly higher than at this time last year."
"Downer will continue to build and grow. We will invest in our existing businesses, including the major rolling stock and light rail opportunities, and look to expand through well targeted acquisitions or joint ventures."
"The bid costs for the two rolling stock projects and the light rail project have not been expensed in the forecast 2016 guidance below. The costs of any unsuccessful bids will be written off in the period of notification of award. This may impact the 2016 result."
Downer’s June 30, 2015 net profit was in line with the guidance given at its half-year results in February.
And that was tough, as CEO, Grant Fenn explained:
“It has taken considerable effort, energy and focus from our people to deliver on our NPAT guidance of $210.2 million,” Mr Fenn said.
“This is a credible and very pleasing result achieved in a difficult environment. The flow-on impact of low commodity prices on business investment and operating expenditure has required us to work even more closely with our customers. We are becoming more efficient, better at what we do and we have continued to build our customer base.”
The company will pay a fully franked final dividend of 12 cents per share unchanged from a year earlier. That’s after a 12 cents a share interim was paid earlier in the year (11 cents previously), making a total for the year of 24 cents (23 cents).
Downer’s shares ended at $4.48 on Wednesday and will be sold down this morning.
DOW 1Y – Downer warns of ‘difficult’ times ahead
