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Crash: Why Aurizon Holdings Ltd shares fell 15%

Shares of Aurizon Holdings Ltd (ASX: AZJ) slumped more than 15% this morning following a market sensitive release.

In an announcement to the ASX, the leading rail operator servicing the resources sector, said deteriorating iron ore and coal prices are having an adverse impact on trading conditions and the near-term outlook for the business.

The company said its above rail coal volumes will be 3% to 4% less than expected this financial year. It also flagged a fall in underlying profit before tax and interest.

For the first-half of its 2016 financial year, it said underlying (before impairments) earnings before interest and tax are expected to be between $390 million and $410 million.

In light of the conditions, Aurizon also revised down the carrying value of some assets. Combined, write-downs to Aurizon’s investment in Aquila, Galilee Basin brownfield costs and rolling stock will incur a charge between $215 million and $240 million in its 2016 financial year.

“Notwithstanding the very challenging market conditions for our customers our business continues to be resilient,” Mr Hockridge said. “Whilst it is disappointing our earnings for the first half of FY16 will be below the prior year’s result, the reasons are essentially one off.”

Foolish takeaway

Aurizon operates a business that usually enjoys a healthy long-term level of recurring business because its infrastructure assets are difficult and costly to replicate. Unfortunately, with commodity prices slumping, the resources customers Aurizon services are under the pump to cut costs, cancel new projects and restrict mine expansion initiatives. This has ripple effects for service providers, including businesses like Aurizon.

And with no end in sight for the current commodities pricing environment, I could see this story getting worse before it gets better.

In my opinion, Aurizon is not a buy, but that's okay because The Motley Fool has just issued a brand-new report, complete with all the details on our expert analysts' #1 dividend stock for 2016 - and I think it is a GREAT buy! Simply, click here now for your FREE copy, including the name and code!

Motley Fool writer/analyst Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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