Orica rapidly running out of credibility

Orica's attempts to rebuild trust have been dealt a serious blow with a minute to midnight earnings warning.

What else could go wrong with Orica?

Ammonia belching on regular occasions from its Kooragang Island plant interspersed with the odd leak of carcinogenic chromium, mercury spewing into the air at Port Botany, management upheaval and shareholders in revolt.

Now this. Orica this morning issued a profit warning, and a massive one at that. Net profit after tax is expected to be around 10% lower than last year’s $650.2 million.

If the amount was a shock, the timing boggles the mind.  The confession season is rapidly coming to a close and the earnings reporting season is almost upon us.

The nature of the three separate issues and the extent of the problems should have been well known to management for months and communicated to the market long ago.

Its European and American ground support businesses are expected to only break even on an earnings before interest and tax basis this year. That’s earnings before significant expenses. Clearly then, those divisions will incur significant losses. Last year, they contributed $109 million on an EBIT basis.

Add in problems in the Indonesian operations and weak demand for explosives as mining exploration slows amid the wind down in the resources boom, and the result is a potentially huge hit to the company (see Roger Montgomery's Inside the mining services disaster).

Not surprisingly, Orica shares have been slammed. They dropped 13.5% in early trade, the biggest fall in five years.

The company’s credibility, under question for the past three years, has been further depleted by this episode.