Weir shares fall as it warns of lower profits

Jon Stanton, Weir Group CEO

Shares of Glasgow-based engineering giant Weir Group fell as much as 6.5% after it said it expects full year 2016 profits to be slightly lower than current market expectations amid continued tough trading in the oil and gas markets.

Weir’s new chief executive Jon Stanton stressed however there were signs in the group’s third quarter performance that its core markets had started to improve.

Analysts are expecting full year 2016 adjusted pretax profit of around £184 million.

The firm’s shares recovered some ground in afternoon trading to close down 2.35% at 1,660p, giving the industrial valves and pumps company a current stock market value of around £3.6 billion.

Cost-cutting measures started under former CEO Keith Cochrane have helped Weir’s share price soar about 66% since the beginning of 2016.

Weir said third quarter input reduced 7% compared to the prior year period, primarily driven by a reduction in activity levels across oil and gas and lower original equipment orders in minerals.

Revenues, on a constant currency basis, were in line with expectations. Operating margins were lower than the prior year, principally due to losses in oil and gas, and broadly in line with first half levels.

Weir, which employs 14,000 people in more than 70 countries, said it remains on track to deliver cumulative annualised cost reductions of £160 million since the fourth quarter of 2014, including £50 million of savings “actioned” in the current year.

Agreements for a further £33 million of property disposals have been signed.

In Weir’s oil and gas division, order input for the third quarter was down 10%, “reflecting the decline in activity levels in all markets compared to the prior year period.”

Original equipment orders were down 24% and aftermarket orders were 6% lower.

In Weir’s “flow control” division, order input for the third quarter was down 4% on the prior year period “with customers remaining cautious and delaying projects across the division’s end markets, particularly oil and gas.”

Pump orders were materially lower “reflecting declines in mid and downstream oil and gas markets with customers delaying investment and maintenance.”

In Weir’s minerals division, order input for the third quarter was down 7%, driven by a 28% decline in original equipment input compared to the strong prior year which included a number of big project wins.

Stanton said: “There are signs in the group’s third quarter performance that our core markets have started to improve.

“Minerals aftermarket orders returned to growth and North American oil and gas customers started planning for higher activity levels next year.

“The group’s trading results reflected the low point in the North American oil and gas market and tougher conditions in the Middle East.

“Assuming commodity prices remain supportive, we anticipate further sequential growth for the oil and gas division in the fourth quarter but little improvement in the pricing environment.

“Given conditions in the Middle East as well, we now expect the division to be around breakeven in the fourth quarter and slightly loss making for the full year.

“The combined outlook for minerals and flow control is unchanged.

“Therefore, including a small further foreign exchange benefit, the group’s full year 2016 profits are expected to be slightly lower than current market expectations.

“Weir is well placed to benefit as markets recover.

“The strength of the team together with our global leadership positions in mining and oil and gas, deep customer relationships and investment in innovative technology, give the group a robust platform for long term growth.”