Weir warns on profits as minerals operations hit
Weir Group warned on Tuesday that operating profit for the year is expected to be lower than previously indicated due to its minerals operations, despite a strong showing in the oil and gas division.
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Weir Group
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In a trading update for the three months to the end of September, the FTSE 250 engineer said group orders were up 21%, with orders in the oil & gas segment up 59%, helped by a rebound in the US, and minerals orders 12% higher. Meanwhile, orders in Flow Control fell 2%, reflecting the bottoming of later-cycle markets.
Chief executive Jon Stanton said: "In 2017 we continue to build on our leadership positions in rapidly improving main markets whilst investing to maximise the significant opportunities ahead of us.
"As the North American onshore oil and gas industry continues to demonstrate its increased relevance as a source of global supply, our oil & gas business is fully leveraging its market leadership position in support of higher activity levels among customers. While international markets remained challenging the division has accelerated in 2017 as we expected and is well placed to continue to fully capture future opportunities."
In the minerals division, the company said its brownfield solutions delivered good order growth with an increasing pipeline of future opportunities. However, profits will be slightly lower than previously indicated due to project phasing, incremental investment in growth and one-off plant reconfiguration as it ensures that the business is well placed to benefit from increased momentum next year and beyond.
RBC Capital Markets said: "Our initial estimates are that full year group operating profit forecasts will need to move around 7-8% lower.
"Clearly the guidance downgrade will be viewed as disappointing, particularly given management reassurances on project phasing and a H2 margin recovery at Minerals with H1 results. We would not disagree strongly with this view, although would highlight that project delays are a fact of life in the Minerals business. A genuine shift to the right - while perhaps impacting management credibility - should not impact the long-term investment thesis.
"The shares have more recently had a good run, outperforming UK Industrial peers by 5ppts over the last month narrowing the YTD underperformance to 5ppts. We expect them to give much of this back. We would consider any oversized adverse reaction in the shares a buying opportunity."
At 0900 BST, the shares were down 6.2% to 1,967p.