Should You Buy BHP Billiton plc Following Today’s Shocking Results?

It comes as little surprise that metals and energy giant BHP Billiton (LSE: BLT) furnished the market with disappointing numbers on Tuesday. The prolonged collapse in commodity prices has prompted a swathe of disappointing updates across the resources sector, after all.

Shares in BHP Billiton were recently dealing 5% lower after the firm announced a net loss of $5.67bn between July and December, swinging from a profit of $4.3bn in the corresponding 2014 period.

Revenues slipped 37% during the six months, to $15.7bn, and BHP Billiton warned that further top-line pain is in the offing. BHP Billiton chairman Jac Nasser noted that “while the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged.”

Dividend destroyed

As a consequence, BHP Billiton has followed the lead of Glencore, Anglo American and more recently Rio Tinto by taking the scythe to its progressive dividend policy.

The business announced it would shell out an interim payment of 16 cents per share, much worse than the market had predicted and down from the 62-cent reward seen in 2014.

Looking ahead, BHP Billiton said it would look to pay out at least 50% of underlying profit at each reporting period, commenting that “our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP Billiton manage volatility.”

In addition to this, BHP Billiton advised of further reductions to its capital expenditure targets — total outlay this year and next has been reduced by an extra $3.5bn.

Expect further troubles

Such steps are of course a sensible decision given the state of BHP Billiton’s balance sheet. Net operating cash flows sank 45% during July-December, to $5.3bn, while net debt remained heady at $25.9bn.

BHP Billiton’s poor balance sheet and precarious earnings outlook prompted Standard and Poor’s to cut its rating on the stock just this month, while Moody’s put the company under review back in December.

But irrespective of BHP Billiton’s fresh self-help measures, I believe investors should be braced for more trouble as revenues should keep on dragging.

Sure, a rallying iron ore price since the start of the year has helped lessen fears of a colossal conclusion to the current fiscal year — BHP Billiton sources more than a third of total revenues from the steelmaking ingredient. But a backcloth of weak Chinese off-take and raging supply is likely to put an end to this rally sooner rather than later, in my opinion.

Indeed, BHP Billiton itself commented today that “the iron ore price will likely remain low, constrained by weak demand and abundant seaborne iron ore supply.” With its other key markets of petroleum, copper and coal also suffering from severe supply/demand imbalances, I reckon BHP Billiton is likely to experience even more bottom-line pain in the months ahead.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.