Weir Group misses forecasts for 1H profits, sees pricing pressures in US shale

Weir Group missed analysts' forecasts for the front half of the year as capacity overhangs continued to weigh on its pricing power in the Oil&Gas market.

For the six months ending on 30 June, the oil and mining equipment manufacturer posted a 38% jump in profits before tax to £143m on a continuing basis, which was shy of the £148m which analysts at Numis had penciled in. Topline growth meanwhile was 15%, for sales of £1.062bn or 23% on a constant currency basis.

The company, whose shares had performed poorly year-to-date, on the back of talk in the US shale sector that a peak in activity may have been reached and recent weakness in copper prices, said that pricing in US fracking had "remained competitive overall, reflecting continued spare capacity among equipment providers."

Nevertheless, group chief Jon Stanton said all of the group's divisions had shown "good momentum" and described the long-term fundamental drivers of the company's main markets as "positive".

Indeed, management said it was still anticipating a "strong" increase in revenues and profits in the O&G division, on a constant currency basis.

They were also anticipating that any potential impacts from moderated growth in the Permian would be offset by both increased activity in other basins and the effect of higher equipment attrition.

US frack fleet utilisation was at roughly 70% during the quarter, Weir said.

Also within its Oil&Gas division, international markets had continued to be relatively challenging with continued pricing pressure, the company said in a statement.

New orders rose by 20% to £1.17bn, for a book-to-bill ratio of 1.10, driven by a 35% in those from O&G to £438m while in Minerals, Weir's other main division, they increased by 12% to £728m.

That compared to a book-to-bil ratio of 0.98 in the back half of 2017.

In a bid to refocus the business on the highly abrasive, aftermarket intensive mining and upstream oil and gas markets, in July the outfit purchased surface mining equipment manufacturer Esco in a $1.3bn transaction and expected to begin the process of selling its flow control arm in the third quarter.

More immediately however, Weir's free cash flow remained in the red, although it did improve to -£7m over the latest six-month stretch from -£50m one year ago, thanks in part to reduced cash dividends as more shareholders took up the scrip option.

Higher operating cash-flows also helped, offset by higher taxes and the settlement of derivative financial instruments. Operating margins on continuing operations improved from 13.5% to 15.1% and were expected to remain in the mid-teens.

Net debt increased too, rising by £43m to £886m at the group level.

Yet for the full-year and at the group level, Weir said it anticipated "strong" revenue and profit growth on a constant currency basis, together with "strong" cash generation and continued balance sheet deleveraging.

The board approved a 5% increase in the interim payout to 15.75 per share, which would be paid on 2 November, and said no scrip alternative would be offered.