Weir Group has warned that profits at its oil and gas division are likely to fall short of forecasts but the Glasgow-headquartered global engineer continues to win work elsewhere.
Releasing a trading update for the third quarter, the firm said growth in the period had been underpinned by its mining equipment business.
Chief executive Jon Stanton highlighted a record £100 million order for an Australian iron ore project, first announced in September.
“The innovative process design, which will reduce energy and water consumption by more than 30 per cent compared with traditional mills, reflects our growing technology offering and focus on making mining smarter, more efficient and sustainable,” he added.
Stanton said the group’s project pipeline in mining remained “encouraging” despite some approvals being deferred due to “negative macro sentiment”.
He told investors: “In North American oil and gas markets, demand was impacted by an intensified focus on cash preservation in the quarter. In response we have undertaken a circa £30m cost reduction programme in this division to support competitiveness in the short-term.
“Looking forward, we now expect 2019 full-year operating profits in the oil and gas division to be below our previous range with guidance for both minerals and Esco divisions unchanged.”
The FTSE-250 group, which employs some 15,000 people globally, including about 750 in the UK, noted that its net debt was broadly in-line with that reported at the end of June.
Alasdair Ronald of Brewin Dolphin said: “Weir Group has continued to face numerous challenges in its oil and gas division, with overall activity levels well down on the comparable period in 2018.
“This business is primarily based in North America where there have been significant cuts to capital spending and it is worrying that full-year operating profits will be below previous guidance. However, there are opportunities to enhance the aftermarket offering and the possibility of international expansion.
“The profitability of the other major division, minerals, has remained exceptionally resilient and the acquisition last July of Esco has helped boost recurring and higher-margin aftermarket sales. The story for Weir continues to be about lessening its reliance on a volatile oil and gas market.”
Analysts at Shore Capital noted: “As mentioned in our initiation note, we predicted that the oil and gas division will be under pressure and present significant downside risk to Weir forecasts. We believe market consensus will adjust given the performance is now expected to be lower than previously guided.”