Weir Group's shares tumble as it struggles to pump up profit in a tough oil market

 
Courtney Goldsmith
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Weir Group's shares dropped as profit slumped (Source: Getty)

Shares in engineering giant Weir Group fell today as the weak North American oil and natural gas market caused a substantial drop in the company's full-year pre-tax profit.

The figures

For the year to the end of December, the firm reported a 22 per cent drop in pre-tax profit to £170m, which was impacted by "severe oil and gas market downturn". Revenue fell two per cent to £1.8bn.

The company's profitable minerals arm outperformed the market with three per cent growth in revenue on the previous year to £1.1bn. The tough market meant like-for-like revenue for Weir's oil and gas arm fell 27 per cent to £417m, while flow control fell 13 per cent to £318m.

Shares in the FTSE 250-listed maker of pipes and valves for energy and mining industries dropped as much as 3.5 per cent in morning trading.

Weir posted 10 per cent order growth in the fourth quarter as mining and oil and gas markets showed signs of recovery, but overall order input fell eight per cent to £1.9bn.

Why it's interesting

The Scottish pump maker has struggled amid the downturn in the commodities market as less profitable oil and mining firms have slashed spending. But things are starting to look up as oil and metals prices rebound.

Read more: BHP Billiton swings back to profit and boosts its interim dividend

The company's weak 2016 performance follows similar full-year results from oilfield services firm Wood Group, which yesterday posted a sharp drop in profit caused by low oil prices. Wood Group said the market challenges are expected to continue in the year ahead.

Weir Group chief executive Jon Stanton believes there are already improvements to be seen as he pointed out the firm returned to growth in the fourth quarter of 2016 due to its investment into new technology and long-term customer relationships.

However, despite encouraging macro trends, he said opinions are mixed on just how the market's recovery will shape up in the year ahead.

Stanton took the top job at the company in October when then-boss Keith Cochrane stepped down.

What Weir Group said

On the performance of Weir Group's three businesses, Stanton said:

"Minerals increased revenues from both original equipment and aftermarket. Oil and gas extended its technology leadership amidst difficult end markets and flow control benefited from its recent restructuring which supported margins in challenging downstream energy markets. Our record of excellent cash generation continued."

Staton added: "Our new strategic priorities will strengthen our capabilities and enable us to fully capture opportunities presented by improving markets, although there is a range of views about the precise shape of the recovery in 2017. At a group level, we expect to deliver strong cash generation and good growth in constant currency revenues. Profit growth will be further supported by foreign currency translation benefits, partly offset by incremental investments in people and technology."

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