ALS Group (ASX: ALQ) could be the next company servicing the resources and oil & gas sectors to report a profit downgrade.
We've already seen Worley Parsons (ASX: WOR), United Group (ASX: UGL) and Coffey International (ASX: COF) announce profit downgrades, with Worley Parsons noting that it had been surprised by the rate of deterioration.
ALS – ex-Campbell Brothers, receives 49% of its revenues from technical testing and inspection services from the minerals industry, and a further 7% from its energy division focused on the coal and oil & gas industries. The remainder of its revenues comes from an increasingly important life sciences division, which provides environmental and foods & pharmaceutical industries, and its industrial division.
Geographically, 40% of its revenue emanates from Australia and New Zealand, and a further 29% from Northern America, including Canada and Alaska.
Importantly, the Minerals division has the highest margins, followed by the Energy division, so a slowdown in resources and petroleum projects and cutbacks to exploration, will have a material effect on the profits of the ALS Group. In fact, late last year, ALS reported that geochemical flows into the company's laboratories had been in decline for a number of months. The company also stated that sample volumes were expected to fall during the six months to March 2013, as a result of industry trends and the normal seasonal cycle.
Consensus estimates suggest the company will see $1.53 billion in revenues for the 2013 financial year, compared to $1.4 billion in 2012. 2014 may be a difficult year for the company, with consensus estimates showing a minor increase in revenues to $1.54 billion. Earnings per share are expected to be lower in 2014 than the current year. However, if ALS Group faces similar issues to Worley, United and Coffey, current expectations may well be too high.
Foolish takeaway
ALS is expected to report its full year financial results within the next couple of weeks. We'll know then whether the company is facing the same issues as other companies servicing the mining and oil & gas industries.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
