Shares in explosives maker Orica Ltd (ASX: ORI) rallied after the release of its half-year result although I suspect analysts will be downgrading their full year estimates for the company.
Feeling conflicted? Well this proves that everything has a price and a profit warning doesn't always feel like a profit warning.
Orica said that earnings per share (EPS) fell 4% to 56.9 cents as revenue dipped 2.3% to $3.28 billion for the six months to end March 2015.
This leaves a pretty big gap to fill if management is to meet consensus EPS estimates of $1.58 and sales of $6.77 billion for the current year.
There's a good chance it won't be able to jump far enough in the current half as management is expecting explosives volumes to be flat in the current half compared to the first half and margins are likely to contract further as the full impact of the fall in explosives prices won't be felt until the second half of this financial year.
Management is also warning of more tough times ahead in the face of the commodity price slump impacting on demand for explosives and an oversupply of ammonium nitrate (AN), which is used in explosives.
The news comes a day after its peer Incitec Pivot Ltd (ASX: IPL) issued a poorly received result that triggered a slump in its share price.
But Orica's share price has moved in the opposite direction as it jumped 2.6% to $20.71.
There a few reasons for this. Orica's results are closer to consensus expectations and much of the bad news is priced into the stock.
Orica is trading on an undemanding 2014-15 forecast price-earnings (P/E) multiple of around 13 times, which puts it close to the bottom of its P/E price band over the past five years.
Second, management is tipping further cost savings for this year and next. The company said it is on track to deliver $140 million to $170 million in savings this financial year, although this will be offset by one-off restructuring costs of between $100 million to $120 million.
What's more, record low interest rates will mean net interest costs will fall by up to 20% in the current year.
Orica is also undertaking a $400 million share buyback following the sale of its chemical business.
Investors are also perhaps comforted that Orica is willing to cut production of ammonium nitrate in the face of the supply-demand imbalance, which is unlike the response from the iron ore giants.
There could be a little more upside left in Orica's share price, but I don't see the stock as being particularly attractive at current prices.
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