By Sonali Paul
MELBOURNE, Oct 30 (Reuters) - Boart Longyear Ltd (BLY.AX), a U.S.-based drilling services company, cut its revenue growth target for this year and warned its profit was likely to fall in 2009 as customers trim exploration drilling.
Boart also said it would halve its capital spending in 2009 from an estimated $160 million this year, curb its acquisition activity, cut 150 factory jobs, or around 1.5 percent of its staff, and book an undisclosed restructuring charge this year.
“Although there is still a great deal of uncertainty as to the extent and duration of the current economic downturn, it is becoming apparent that our record financial performance in 2008 is unlikely to be replicated in 2009,” President Craig Kipp said in a statement.
Analysts had forecast a 5 percent rise in net profit for calendar 2009.
Boart’s shares initially fell 6 percent after the announcement on Thursday, but reversed to trade up 6 percent to A$0.50, outpacing a 2 percent gain in the broader market .
Analysts said the market had expected the worst, having knocked its shares down 58 percent this month.
“They’ve effectively downgraded ‘09 expectations and confirmed what the market was fearing. I guess the market’s saying that was in the price,” said Macquarie Research analyst John Purtell.
For 2008, Boart now expects revenue growth of 22 percent, down from an earlier forecast of 25 percent, as the rise in the U.S. dollar would trim the translation of its Aussie and Canadian dollar revenue.
The company, which competes with Canada’s Major Drilling Group International (MDI.TO), said there were signs that demand for exploration drilling was starting to ease, and orders for drilling products it makes had softened in recent weeks.
“Although we have not yet seen a significant change in our global rig utilization, redeployment and rig turnover activity has increased as certain contracts have been delayed or reduced and junior mining companies are taking actions to conserve cash,” it said.
Vice President John Heskett declined to say whether the shift was coming only from smaller mining clients, which made up 20 percent of its revenue so far this year, or also from big clients, which include top global miner BHP Billiton (BHP.AX) (BLT.L).
“I guess there’s concern about what the majors are doing as well,” said Macquarie’s Purtell.
Heskett said the company was assessing a range of other cost savings, which could include plant closures.
The group had been looking for three to four acquisitions a year, aiming to add around US$100 million a year in revenue.
“It’s fair to say we’ll probably be more selective, and the priority next year will be on the balance sheet and enhancing cash flow,” Heskett told Reuters. ($1=A$1.51) (Reporting by Sonali Paul; Editing by James Thornhill & Ian Geoghegan)