Allis-Chalmers… Too Little, Too Late? (ALY)

February 6, 2009 by Douglas A. McIntyre

Oil_well_image_2We noted this morning that Allis-Chalmers Energy Inc. (NYSE:ALY) had been downgraded and that the oil field services sector as a whole faced a more general turn south from at least S&P with warnings of more oil drillers and services sector company downgrades. In an effort to stop the bleeding, Allis-Chalmers announced cost reduction steps that it says will reduce its costs by $21.7 million annually. Included in that number are 235 jobs that will be cut.

A back-of-the-envelope calculation produces annual cost of revenues ofabout $500 million and G&A expenses of about $60 million. Thatmeans that Allis-Chalmers can come up with savings of just 4%.

If companies want to please the ratings agencies, even those in the oilpatch, then it might be reasonable to expect that more cost cuts arecoming.

The company’s shares are fluctuating widely in early trading, and fellbelow the 52-week low of $2.95/share briefly before moving back over$3/share.

Paul Ausick
February 6, 2009