Layne Christensen's Lackluster Q2

Layne Christensen Co. (LAYN - Snapshot Report) announced fiscal second-quarter results yesterday after the closing bell. The company reported GAAP net loss of $8.6 million or 45 cents per share, compared to GAAP net income of $15.1 million or 78 cents per share in the year-ago quarter.

Excluding a non-cash impairment charge, net income came in at $4.4 million or 23 cents per share, beating the Zacks Consensus Estimate by nearly 92%, or 11 cents.

Layne Christensen is engaged in providing drilling services and related products and services in 4 principal markets: water infrastructure, mineral exploration, geotechnical construction and oil and gas. The company’s customers include municipalities, industrial, mining, oil and gas companies and consulting and engineering firms.

The Mission Woods, Kansas-based company’s revenue slumped 19.4% year over year to $217.2 million, still it came in ahead of the Zacks Consensus Estimate of $214.8 million.

Sales from Water Infrastructure, the company’s flagship segment, slipped 11.2% to $174.1 million primarily due to lackluster performance across all major product lines, partially offset by growth in pipeline construction due to a significant project in Colorado.

Revenues were particularly sluggish in the Western U.S. on account of a slump in housing construction coupled with budget constraints on municipal government spending. The segment’s backlog also fell by 5.1% year over year to $453.4 million.

Revenue from Minerals Exploration plunged 49.2% year over year to $30.3 million as markets were impacted by a tight credit environment and sluggish economic conditions. The Energy division recorded a slight 0.8% year-over-year decline, mainly attributable to management’s decision to slash production on account of depressed natural gas prices.

The company’s gross profit reduced 27.1% year over year to $51.7 million, while gross margin contracted 250 basis points to 23.8%. The decline was primarily caused by a shift in the mix towards low margin heavy construction projects and pricing pressures.

Meanwhile, Layne Christensen posted a pretax loss of $13.0 million, against a pretax profit of $24.8 million in the year-ago period. The loss was the result of sluggish revenues and gross margin coupled with an impairment charge of $21.6 million related to oil and gas reserves determination.
 
Layne Christensen ended the quarter with cash and equivalents of $64.8 million, compared to $62.7 million at the end of the previous quarter. The company‘s total long term debt was $13.3 million at the end of the quarter, against $26.7 million in the last quarter.
 
Looking ahead, management expects weak demand for additional water supply to affect performance in the rest of the fiscal year. The company also warned that its Energy division may suffer further impairments if natural gas prices remain depressed or if it is unable to replace current forward sales contracts at favorable prices.

The Zacks Consensus Estimate, derived from 6 covering analysts, on earnings for the fiscal year ending January 2010 is currently pegged at 47 cents per share, which has moved down by 6 cents over the past 3 months.

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