Arrium Ltd's (ASX: ARI) decision to close one of its two iron ore mines and take a $1.3 billion writedown hasn't hurt the stock much but engineering contractor MACA Limited (ASX: MLD) seems worse for wear as the stock could soon retest last month's record low.
MACA issued a profit downgrade on the back of Arrium's announcement with the contractor now forecasting 2014-15 revenue to come in at around $620 million compared with its earlier forecast of more than $650 million.
The stock slumped 7.7% to 90 cents in early trade and isn't far from December's record low of 75.5 cents.
In contrast, Arrium's share price advanced 2.2%, or 0.5 cent, to 23 cents as investors bet that the bitter medicine Arrium has to take will put the vertically-integrated steel producer back on the path to profitability.
The outlook for MACA is much cloudier. While the revenue downgrade is fairly modest at around 5% and management is boasting that it has $1.4 billion worth of work in hand, investors are nervous that there may be another shoe that's still to drop with the price of iron ore dropping to a five-and-a-half-year low.
The price of the steel making ingredient is under pressure from worries that China's steel factories will cut output ahead of the Chinese New Year holidays on February 19.
The bad news comes just days after MACA said that falling lead prices has forced another client to mothball the Rosslyn Hill mine, although that wasn't enough to force MACA to change its guidance on January 19 this year.
What's that saying about profit downgrades coming in threes?
The other issue facing MACA is operating leverage. A relatively modest drop in sales tends to have a disproportionately larger impact on the bottom lines of engineering contractors because of their fixed cost base.
