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Why Dresser-Rand Group (DRC) Is Lower on Tuesday

Stocks in this article: DRC

NEW YORK (TheStreet) -- Dresser-Rand Group (DRC) is tumbling on Tuesday after announcing plans to suspend operations at a plant in Spain due to proposed government regulation. Management also lowered its 2013 guidance.

By late morning, shares had taken off 8% to $54. Trading volume of 3.6 million was nearly five times its three-month daily average.

The company, which specializes in rotating heavy machinery equipment, said it intends to suspend work at its pig manure treatment facilities in Spain due to the potential implementation of regulation that would mean significantly reduced beneficial tariffs at its Spanish operations. The government has published a draft bill which would reduce tariffs by 37% retroactive to July 2013.

"In view of the pending change in the tariffs, the company has decided to suspend the operations at its six facilities, although discussions with the Spanish government are ongoing," Dresser-Rand said in a statement.

If the draft regulation is passed, the Olean, NY-based business would be required to reduce 2013 operating income by around $25 million due to retroactive tariff reductions and up to $50 million due to asset impairments.

The company also updated its preliminary guidance for its December-ended fourth quarter.

Operating income is expected to be lower than previous guidance of between $400 million and $440 million, as it was not able to sell three photovoltaic power plants to MBB Clean Energy as previously predicted. Also, the company was not able to recognize revenue in the fourth quarter on the shipment of equipment to Central Asia due to pending contractual matters. Combined, these two items will reduce 2013 operating income by around $19 million.

Further, the impact of proposed Spanish regulation will impact full-year operating income by up to $75 million. Operating income is now expected between $306 million and $316 million. Analysts surveyed by Thomson Reuters had anticipated operating profit of $531.7 million.

"Our fourth quarter operating income before the potential impact of the proposed Spanish regulation is expected to be at a record level," said CEO Vincent Volpe Jr. in a statement. "However, it will be lower than our earlier expectation."

Excluding the impact of proposed Spanish regulation, management expects revenues for 2014 to be between $3 billion and $3.2 billion, lower than analyst consensus of $3.45 billion.

Management also noted that its suspended operations could remain so until the Spanish regulation has been finalized. A prolonged suspension would reduce full-year 2014 revenues by around $125 million.

The company is due to report its fourth-quarter and 2013 full-year results at the end of February.

Must Read: Dresser-Rand Announces Its Plan To Suspend Operations At Its Pig Manure Treatment Facilities In Spain Due To Proposed Spanish Regulation

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