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Boart's earnings down but shares up

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MELBOURNE, Nov 19 AAP

November 19 2012, 2:34PM

Usually a profit downgrade sends a company's stock plummeting, but traders surprised on Monday, sending drilling company Boart Longyear up in value.

It has been a tumultuous few months for the world's largest drilling firm, in which it posted a record annual profit of $US98 million ($A95.09 million) but on the same August day cut its earnings guidance and had its share value wiped by 37 per cent.

The continued terrible share price performance - which has halved since August - angered shareholders and led to Boart's board sacking chief executive Craig Kipp.

On Monday, the stock was 5.5 cents, or 4.4 per cent, higher at $1.35 at 1415 AEDT.

Boart Longyear downgraded expected annual earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2012/13 $US310 million to $US320 million ($A301.51 million to $A311.24 million).

That is down from its previous forecast of $US360 million to $US390 million ($A350.14 million to $A379.32 million), which followed a sharp downgrade in August from previous guidance of $US460 million ($A446.32 million).

The fortunes of companies such as Boart that rely heavily on being contracted by mining companies have changed dramatically for the worse in recent months as capital expenditure has been cut due to falling commodity prices.

The company carries out exploratory drilling for resource companies and also makes drilling equipment.

The reason for the share price rise seems to be that investors liked the company's plans to move its Perth operations overseas to cut costs, optionsXpress market analyst Ben Le Brun said.

It said it would cut annual costs by about $US70 million ($A68.08 million), or 20 per cent of its total overheads, as it deals with lower demand.

It will move its manufacturing operations from Perth to Poland and other locations, costing up to $US20 million ($A19.41 million), but offered no information on the number of job loses.

Chief executive David McLemore said the company's earnings forecast had been reduced because margins were not being achieved due to delays in staff reductions.

"Revenues are broadly consistent with expectations, but margins in drilling services have been impacted due to timing of cost take-outs associated with headcount reductions," Mr McLemore said in a statement.

He said it appeared that demand had stabilised and through the cost cuts it expected a recovery in margins to above second-half 2012 levels.

Mr Le Brun said he couldn't recall a company's shares performing so well after a profit downgrade.

"At this stage it doesn't look all that good for mining services companies with Australian operations that are struggling," he told AAP.

By Greg Roberts