What: Shares in explosive manufacturer Orica Ltd (ASX: ORI) have dropped around 9% in mid-morning trade on Monday after the group released its interim results for the six months ending 31 March 2016.
So What: The headline number which included a $41 million expense relating to a settlement with the Australian Tax Office (ATO) saw Orica's net profit after tax (NPAT) fall 29% to $149 million.
However, excluding the one-off ATO expense, underlying NPAT fell just 10% to $190 million. This fall was in line with the 9% decline in revenue for the half to $2.5 billion.
On a per share basis, underlying earnings also fell 10% to 51.2 cents, however, the dividend was slashed in half to just 20.5 cents per share (cps), down from 40 cps in the prior corresponding period.
Now What: According to a statement by management: "Market conditions deteriorated more than we anticipated during the half, marked by increased volatility. It is expected that the market will remain challenging for the foreseeable future."
Like its peer Incitec Pivot Ltd (ASX: IPL), Orica's business has taken a battering from the decline in demand and spending from the resource sector across the globe.
For investors, the key question to answer is how close to the bottom of the cycle are Orica's earnings?
With the share price currently trading around the $14 mark, annualising today's result suggests the stock is trading on a forward price-to-earnings multiple of 13.7 times. That could arguably be a very appealing entry point for long-term investors who are prepared to call the bottom of the cycle.
