The Weir Group PLC Drops As Exchange Rates Hit Profits

Shares in Weir Group (LSE: WEIR), the Glasgow-based engineering company, are currently down 4%, following publication of first-half results, to 4 July 2014.

On a constant currency basis, operating profit rose 4% (to £201m) and pre-tax profit increased 7% (to £182m), on revenue that was up 6% (to £1,144m).

But adverse exchange rates had a significant impact, and resulted in all three measures falling on a reported  basis: operating profit fell 7%, statutory pre-tax profit was down 6% and revenue slid 5%.

The company highlighted order growth that was up 10% year-on-year and 9% on the second-half of 2013. It also said that there was “positive aftermarket momentum”, with growth of 15% in order inputs, and that strong growth in its upstream Oil & Gas operations results in a divisional input that was up 40% year-on-year. 

On the downside, Weir says that the mining market remains “challenging”, and that its margins have been hit by industrial action by metalworkers in South Africa, which closed its manufacturing operations there. 

Earnings per share dropped 8%, to 61.4p, but the company is rephasing its dividend payments such that the interim will contribute 70% of the full-year payout. The interim dividend for 2014 being recommended is 15p per share, compared with 2013’s 8.8p.

Commenting on the results, CEO  Keith Cochrane said:

“Weir has delivered a good underlying first half performance in line with expectations. The benefits of our diverse portfolio were evident as the impacts of previously identified downside and upside risks offset each other.

“We anticipate strong revenue and profit growth in the second half of 2014, assuming no further deterioration or disruption in mining end markets. As a result we remain on track to meet our full year expectations of good constant currency revenue and profit growth with Group margins broadly in line with 2013 levels. Reported results will continue to be affected by foreign currency headwinds, which strengthened over the first half.“

At 2,563p, the share price of Weir is up 20% so far in 2014, versus a FTSE 100 that’s barely moved (up just 0.25%). And over five years, Weir is hammering the index, with a 369% rise in share price compared to the 47% gain made by the FTSE.  Weir currently stands on a price-to-earnings (P/E) ratio of 16, versus a sector average of almost 20.