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Aurizon drops on soft earnings guidance

AAP logoAAP 14/08/2016 Lilly Vitorovich

Investors have dumped Aurizon shares after the rail freight operator forecast lower-than-expected 2017 earnings, along with more cost cutting measures and a review of its road-rail terminals and bulk freight operations.

The group now expects underlying earnings of between $900 million and $950 million in the current financial year, after posting an 88 per cent fall in net profit to $72 million for 2016.

IG market strategist Evan Lucas blamed the fall in shares on "very, very soft" underlying earnings guidance, given the market consensus was about $975 million.

"It's a big red flag," Mr Lucas told AAP.

Aurizon's guidance excludes a minimum of $100 million in restructuring costs anticipated in 2016/17.

Underlying earnings for the year to June 30, 2016, dropped 10 per cent to $871 million, with volumes and revenue under pressure in the group's rail operations.

Chief executive Lance Hockridge said the fall in coal volumes had stabilised since February but the company's ongoing transformation would be the "major driver" of earnings growth.

That had delivered $131 million in savings 2015/16 and was expected to provide another $250 million by 2018.

"We have increased confidence in our ability to deliver an additional $250 million in cost reductions and productivity improvements to take $380 million out of our cost base for the three years to FY18," Mr Hockridge said.

That would mean a reduction of more than $630 million in costs over five years, he said.

He said all options were on the table when it came to a review of the rail-based intermodal and bulk freight operations.

Aurizon plans more layoffs on top of the 300 announced in July, but didn't specify how many.

It cut 600 jobs in the year to June 30, and since its $4.05 billion float in November 2010, has cut its workforce by a third to 6,000.

The group on Monday also axed the remainder of its $500 million share buyback in order to manage its balance sheet for possible growth opportunities, including a bid for Glencore's coal haulage business.

The company has around 20 per cent, or $100 million, left of its buyback unveiled in 2014.

Mr Hockridge described it as a "challenging year" for the company and its customers, with volumes and revenue under pressure in its rail operations, particularly in freight.

Aurizon's profit of $72 million for the year to June 30 was sharply down on the $604 million in 2014/15, with the group taking writedowns on its investment in iron ore miner Aquila Resources amid tough market conditions.

Revenue fell nine per cent to $3.5 billion, with coal rail revenue down three per cent.

Profit was hit by previously announced before-tax asset impairments of $528 million, including $226 million related to Aquila, $177 million on rolling stock and $125 million on strategic projects.

Aurizon shares were down 32.5 cents, or 6.5 per cent, to $4.68, in a slightly higher Australian share market around lunch time.

AURIZON PROFIT DROPS

*Net profit fell 88pct to $72m

*Revenue fell 9pct to $3.46b

*Final dividend slipped to 13.3 cents, from 13.9c

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