28th Apr 2016 11:23
LONDON (Alliance News) - Shares in engineer Weir Group PLC were trading higher Thursday after the group affirmed its expectations for the full year but said the first half would outpace market expectations following a better-than-expected start to the year.
Weir shares were up 5.7% to 1,190.00 pence on Thursday around midday, the second best performer in the FTSE 250.
Weir, an industrial valve and pumps maker with a heavy exposure to both the oil and gas industry and mining projects, has been heavily bruised by the downturn in both of those markets. Heavy cuts to spending plans, project deferrals and cancellations, and the generally subdued nature of both the oil and gas and the commodities industry has hammered order input for the company, resulting in it dropping from the FTSE 100 last year.
On Thursday, Weir said its like-for-like order input in the first quarter was down 22% year-on-year, with revenue declining by a broadly similar amount. This was driven primarily by a sharp decline in activity in the oil and gas industry. Original equipment orders for the quarter declined 11% and aftermarket orders were off 25%, Weir said.
Operating margins were lower year-on-year in the quarter, again due to oil and gas issues, but were better than expected thanks to cost-cutting in Weir's Minerals division. Those margin improvements will be complemented by further cost savings that Weir has made in the minerals business, which will flow through as the year progresses.
Order input for the Minerals unit was down 4.0% year-on-year and 5.0% on a like-for-like basis, Weir said, but was stronger against the fourth quarter of 2015 and slightly ahead of the company's expectations.
Original equipment orders for the Minerals unit in the quarter grew 15% year-on-year, helped by a good contribution from the Delta Valves business that Weir bought in July last year. But even excluding Delta, like-for-like orders grew 11% as the company managed to perform well in capturing opportunities available within a very challenging market.
The good performance in the Minerals arm helped brighten the picture for Weir somewhat as its Oil & Gas business continued to struggle. First quarter Oil & Gas order input fell 47% year-on-year, slightly weaker than expectations. Input also declined against the fourth quarter, illustrating the ongoing deterioration of conditions in the market.
A limited improvement in oil prices since February has not driven an upturn in the market Weir said. The US rig count is forecast to be around 46% lower year-on-year in 2016 and declined another 20% in the past two months, the company said. Outside North America the picture is no prettier, with the rig count now hovering at 2009 lows.
This has further reduced demand for pressure pumping and pressure control equipment, Weir said.
Weir said a slower-than-anticipated recovery for the oil and gas market in 2016 will mean its constant currency revenue for the full year in the Oil & Gas unit will be slightly below expectations. Operating margins will continue to take a hit, though profitability is anticipated to improve slightly in the second half for the oil and gas arm.
Weir's other division, Flow Control, saw order input fall 20% in the first quarter amid customer caution and project delays driven by economic uncertainty amongst its client base. Pump orders were lower, hit by declines in mid- and downstream oil and gas markets. Valve orders fell, but valve aftermarket order input grew thanks to a higher exposure to power and industrial markets.
"The group has maintained its focus on strong cash generation, aggressive cost reduction and developing the innovative solutions which have made Weir a global leader. This comes against the backdrop of ongoing challenges across our end markets," said Chief Executive Keith Cochrane.
As a result of the better-than-anticipated outcome for the first quarter, Cochrane said first-half profit should be slightly ahead of market expectations.
"Our full-year expectations remain unchanged, reflecting the slower recovery now anticipated in oil and gas markets," Cochrane added.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
Weir Group