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Slump! Aurizon Holdings Ltd shares sink 6% on big profit drop

Shares in rail freight operator Aurizon Holdings Ltd (ASX: AZJ) are under pressure this morning with the stock falling around 6% to $3.62 after the company released its interim results for the six months ending 31 December 2015.

Here are the key points:

  • Revenue declined 11% to $1.8 billion
  • Underlying earnings before interest and tax (EBIT) slumped 17% to $403 million
  • Underlying net profit after tax crashed 23% to $237 million
  • Underlying earnings per share fell 22% to 11.2 cents per share (cps)
  • The partially franked interim dividend was raised 12% to 11.3 cps. Shares in Aurizon will trade ex-dividend on February 26, with payment on March 29.
  • Return on invested capital declined to 8.8% from 9.4% with the company blaming lower underlying above rail earnings

Outlook:

The slowdown in the resource sector is obviously having a pronounced effect on Aurizon’s operating environment. However the outlook for the second half would appear set to improve compared with the first half, with management providing full year guidance for EBIT in the range of $845 million to $885 million.

The improvement to the bottom line is set to be helped by the company’s plans to reign in capital expenditure by $150 million to $200 million for the next 18 months.

What now:

Based on guidance from management, Aurizon appears to be trading on a forward price-to-earnings multiple below both the market average and also below peers Asciano Ltd (ASX: AIO) and Qube Holdings Ltd (ASX: QUB).

In light of the takeover battle underway for Asciano, any further share price weakness – it’s already at a 52-week low – could lead to Aurizon’s strategic assets coming under close scrutiny from potential buyers.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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