Share price rises but firm cuts costs and jobs after orders fall
Chief executive reluctant to make further job cuts but uncertainty about outlook may force hand
WEIR Group has added more than £200 million to its market capitalisation after a 23 per cent drop in first quarter oil and gas orders turned out to be not as bad as the market had feared.
But chief executive Keith Cochrane warned the company does not expect any significant upturn in that sector this year.
As a result it is cutting costs at its oil and gas arm by another £10 million which is likely to see a further 125 people in North America leave the business.
The latest initiative comes on top of hundreds of jobs it has already cut around the world in recent months as part of a plan to save tens of millions of pounds.
Weir warned it was expecting a further downturn in upstream oil and gas orders, where it has significant exposure to the shale gas industry in the United States, in the second quarter of the year.
It also warned “there remains limited visibility on when the market will stabilise” and conditions in international and downstream remained challenging.
In the oil and gas division original equipment orders slumped 41 per cent year-on-year with aftermarket down by 15 per cent.
Weir said orders were down 29 per cent from the level in the final three months of 2014.
Customers in pressure pumping and pressure control were said to have been negotiating price cuts of between five and 20 per cent.
Weir, which specialises in making valves and pumps, said it was consolidating more of its service centres in the US.
Chief executive Keith Cochrane indicated he would prefer not to make further job cuts after shedding 27 per cent of its North American staff in the past five months.
He said: “It is really tough and none of us like to do these things but it reflects the challenges of the markets we are [in].
“I would not say we are absolutely there but I think we are getting closer to the point at which I would think very carefully about further headcount reductions.”
However Mr Cochrane is not forecasting a quick rebound in shale activities in the near term.
He said: “Visibility is quite limited. don’t think any of us can claim to know when the bottom will be reached.
“Having said that the rate of decline has slowed compared to the first couple of months of the year.
“Some commentators are saying we will see a pick up in the second half. Our own view is it is way too early to call that.
“We are quite cautious and are certainly not planning, in terms of the action we have taken, in terms of any pick up for the rest of this year.”
Some analysts had been expecting oil and gas orders to fall by as much as 45 per cent.
Weir’s share price led the FTSE risers board for much of the day eventually closing up 98p, or 5.6per cent, at 1836p.
That saw Weir’s market capitalisation increase from £3.7bn to more than £3.9bn.
In its minerals arm orders rose five per cent helped by its acquisition of Chinese grinding and rock crushing company Trio, which it bought for £138m in October last year.
On a like-for-like basis orders dipped two per cent in the first three months of this year although Weir pointed out there had been a six per cent rise when compared to the final quarter of 2014.
The industrial segment saw a 14 per cent drop in orders year-on-year with original equipment falling 34 per cent.
Weir said valve and hydro equipment orders are hit by project delays in the oil and gas and power markets.
The aftermarket, which includes servicing and replacement of equipment, grew 12 per cent thanks to a strong performance from valves.
Canadian investment firm Canaccord Genuity kept a buy rating on the Weir stock even though they expect the next few months to be “bumpy”.
Harry Philips from Canaccord said: “The company is generating substantial cash and remains a market leader in markets that have long term structural growth.”