Worleyparsons Limited scraps dividend as profit crashes

Fresh from a 6% gain on Tuesday, all eyes will be on the shares of Worleyparsons Limited (ASX: WOR) today after the company reported its half-year results. Key takeaways from its results were as follows:

  • Half-year aggregated revenue came in 12% lower year over year at $3.2 billion.
  • Net profit after tax was $73.9 million – a decline of 29%.
  • The company produced earnings of 29.9 cents per share, down from 42.2 cents last year.
  • Operating cash flow is now $44 million after $38 million in cash outlay for overhead reduction costs.
  • Finally, perhaps the headline will be the fact that the company was expected to follow in the footsteps of BHP Billiton Limited (ASX: BHP) and reduce its dividend, but it has instead decided to not pay an interim dividend.

According to CommSec, analysts had been expecting the company to produce full-year earnings per share of 69 cents per share, and pay a full-year dividend of 32.4 cents per share. These results mean the company faces an uphill struggle to match market expectations on both accounts.

If the recent rally in commodity prices is sustained then the company could be set for a bumper second-half, but whether it will be enough to meet market expectations is the big question.

I feel this rally has been the trigger to the almost 17% gain the shares have made in the last seven days.

Management decided to not pay an interim dividend in order to strengthen its balance sheet. I feel it is a sensible decision by the struggling professional services company, but not one I imagine shareholders will be happy with. With the shares down 65% in the last 12 months, I’m sure many saw the dividend as the only cloud with a silver lining.

Shares in the mining services sector are of course heavily reliant on commodity prices. Commodity prices have been rallying recently, but should they drop back down, I would expect Worleyparsons and other mining services sector shares to do the same.

I can’t help but feel that investing in Worleyparsons and other mining services shares comes with a high element of risk and would put lower risk investments in companies like CSL Limited (ASX: CSL) ahead of it.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor James Mickleboro 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.