Downer EDI posts positive start to earnings season

The engineering services group delivered on guidance despite difficult operating conditions.

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The infrastructure, mining and rail services group Downer EDI (ASX: DOW) reported underlying net profit after tax (NPAT) of $215.4 million today, up 10.3% on the 2012 financial year. Underlying earnings before interest and tax (EBIT) increased 6.9% to $370.3 million.

The group's mining division increased revenues 3.7%. A respectable result set against a serious slowdown in mining services. The business has seen a share price slide this year, as capital expenditure in the mining industry reaches decade long lows. Competitors Leighton Holdings (ASX: LEI) and Boart Longyear (ASX: BLY) have been hit even harder.

The strongest performer was Downer's infrastructure business. Revenue increased 13.1% to $5.2 billion. Improved cost controls, project execution and EBIT up 53.9% in New Zealand, all contributing to the success.

The rail group was the one disappointment, EBIT dropping 22.7%. Completion of the Waratah train project is on track for mid-2014, and this is a cornerstone of what the group describes as a 'transitional stage' for the rail business.

A partially franked (70%) final dividend of 11 cents per share was declared, providing an attractive yield to investors who liked the results, sending the share price up over 4% on Tuesday.

Foolish takeaway

To date the group has avoided the worst of the mining slowdown. Forecast NPAT for 2014 is flat at $215 million and the group remains leveraged to the health of the wider Australian economy, the outlook remains cautious.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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