Ports and rail operator Asciano has surprised the market by slashing about $250 million in spending and rushing in job cuts in a worrying sign for the Australian economy.
Planned spending on its Pacific National coal and rail train fleets and port terminals and logistics businesses are in the gun.
Capital expenditure for this year has been shaved by about 20 per cent from $700 million to $800 million to between $575 million and $625 million.
Next year’s spend has been reduced by about 12 per cent from $800 million to $900 million to between $700 million and $800 million, but there might be more.
“If soft economic conditions continue into FY14, management has further flexibility to re-phase capital expenditure to more appropriately align with top line growth,” chief executive John Mullen said in a presentation to the Macquarie Australia Conference in Sydney on Thursday.
The company’s shares dropped 14 cents, or 2.6 per cent to $5.23.
Asciano’s move to cut capital expenditure for the medium term indicates a negative outlook for the economy, given its involvement in transport and port services handling commodities for export and importing goods for sale.
It still expects higher full year net profit and revenue when it reports in August, following a bumper 70 per cent increase to $199.9 million in the first half.
The company’s March quarterly update, released on Thursday, showed softer volumes in the key areas of Pacific National Rail and port terminal and logistics, with a lower number of goods hauled and containers coming through.
“That really raises some concerns about the economic conditions in Australia, it certainly signals that it’s weakened,” Morningstar senior equities analyst Ross MacMillan told AAP.
“I was a little bit surprised … the fact that they’re planning these reductions in capital expenditure indicates they are also forecasting the deterioration in economic conditions will continue.”
Its biggest business, the Pacific National Coal haulage division, performed well with a 22.3 per cent increase to 33.4 million tonnes moved compared to the March quarter last year.
Bulk and automotive stevedoring was stronger also, suggesting healthy movements of both agricultural commodities such as grains and minerals to boats.
The problem was how long that would last, given the current situation of virtually all commodity prices falling other than iron ore in recent weeks, Mr MacMillan said.
Asciano said on Thursday that redundancies would now be accelerated into the current quarter instead of at the end of 2013.
Asciano reignited industrial anger and a possible war on the waterfront last year by announcing 270 jobs would be cut from the ports division as it automates Port Botany in Sydney.
A February strike by train drivers in NSW would also deliver a $2 million to $3 million hit to profit while bottlenecks in that state were also hurting its outlook.