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ASX mining services sector hammered

Following completely different profit results from two of Australia’s leading mining services companies, the sector was hammered, with share prices down pretty much across the board, on concerns over their near-term futures.

Despite reporting a 38% rise in first half profits to $79 million, construction and engineering company, Monadelphous Limited (ASX: MND) just missed analyst expectations, and reported that the 2014 financial year was anticipated to be a year of “consolidation”. The company said 2014 would see revenue growth challenging, as near-term project approvals slowed down, reducing opportunities for the group in the medium-term. Investors didn’t like that much, pushing the shares down 6%.

We’ve previously highlighted concerns for the industry as exploration expenditure falls, with some experts predicting that mining investment in Australia had already peaked, and we could see a prolonged slowdown in capital spending on new and existing resource projects. Rio Tinto Limited (ASX: RIO) announced last week that it was cutting US$750 million from its exploration budget in 2013, while Mount Gibson Iron Limited (ASX: MGX) reported today that it was cutting between $120 to $150 million in capital and operational expenditure.

Manufactured accommodation and caravan maker, Fleetwood Corporation (ASX: FWD) also reported its half year results to the market today, and provided a stark contrast to Monadelphous’ results. Net profit for the six months to December 2012, fell 81% to just 5.1 million, on the back of falling revenues.

Occupancy at its Searipple village in the Karratha region declined to 40-50% of capacity, following the completion of projects by Rio and Woodside Petroleum. Low levels of manufacturing activity in Western Australia were experienced by Fleetwood, following falls in commodity prices.

The company’s Recreational Vehicles (RV) division continues to experience weak trading conditions. Consumers don’t seem too keen on laying out large sums of cash for discretionary items such as caravans and trailers.

Fleetwood expects a better performance in the second half, with upgrade projects to begin and an accommodation village to start in Gladstone, Queensland. 2014 is also expected to benefit from the operational phase of two new villages, improved occupancy at Searipple and consolidation of operations in the RV division. Investors shrugged off the company’s optimism, pushing Fleetwood’s shares down 3.7%.

Foolish takeaway

While some mining services companies are still performing well, the outlook beyond 2013 for most doesn’t appear bright, and the market penalised the sector heavily today. It’s unlikely to get much better for shareholders in those companies, in the short to medium-term.

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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). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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