12% Down: Here's why Worleyparsons Limited is getting walloped

The Worleyparsons Limited (ASX:WOR) share price is getting walloped.

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Attention shareholders, look away now!

The Worleyparsons Limited (ASX:WOR) share price is getting walloped.

Source: Google Finance
Source: Google Finance

In a statement to the ASX this morning, the mining services business delivered a result which shocked the market.

For its half-year to 31 December 2016, Worleyparsons reported a 35% decline in revenue to $2.7 billion and a loss of $2.4 million — down from a profit of $23 million in the same period last year.

The company reported a number of write-downs and impairments to the tune of $81.5 million, or $60 million on a net basis.

"We have made substantial progress on our priorities of reducing internal costs, improving customer delivery and optimizing the portfolio," Worleyparsons CEO Andrew Wood said. "Gross margin increased as project and customer delivery performance improved."

The company did not pay a dividend but said it is aiming for $450 million in annualised savings by the end of its 2017 financial year.

"Notwithstanding that market conditions remain challenging, customers' sentiment is improving and they are informing us that their activity levels are not expected to deteriorate further," Mr Wood added. "The benefit of the cost reductions achieved by the Company in the first half, are expected to be reflected in second half earnings."

Should you buy Worleyparsons shares in 2017?

Worleyparsons appears to have caught investors off-guard with today's announcement. While the business could make cost reductions and return to profitability sooner rather than later, I think the business is not a good one for the long term. At least, not as a core position.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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