Why Bradken Limited’s shares have fallen more than 4% today

Mining services still getting hammered

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Mining and earthmoving equipment supplier, Bradken Limited (ASX: BKN) has seen its shares drop more than 4% today, after the company issued a profit warning.

The company says it will reorganise its manufacturing operations to cut $27 million of costs, with 60% of the savings to be achieved in the 2015 financial year. The company will take a one-off hit of $51.4 million before tax this financial year thanks to retrenchment costs, plant and equipment write offs and other site closure costs.

Bradken says its workforce will fall to 4,700 with 10% of workers cut. That’s 25% lower than at the peak in September 2012. The company also lowered its forecast for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from $180 million to $173 million.

Bradken mainly supplies products used by the mining services industry, and says it is seeing no improvement in the outlook over the short to medium term. The company is progressively closing its higher cost Australian manufacturing operations, moving some operations to China.

The announcement shows that bad news is still coming for mining services companies. Earlier today, Austin Engineering Ltd (ASX: ANG) went into a trading halt after announcing that it expected full year earnings for 2014 will be ‘materially’ lower than market guidance and consensus estimates. Austin also manufactures, repairs and supplies mining equipment.

Fellow mining services companies GR Engineering Services Ltd (ASX: GNG) and Transfield Services Limited (ASX: TSE) have also been punished today, losing 4.3% and 2.6% respectively.

Mining investment continues to fall as projects are completed and very few new projects are starting to replace them. As a result the mining services sector hasn’t hit rock bottom. While shares in several stocks may look cheap, they can still and are likely to fall further from here. as the investing term goes, “It’s dangerous trying to catch a falling knife”.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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