Global resources engineering group, WorleyParsons of Perth, surprised the market yesterday with a semi downgrade of expectations for the coming year – certainly for the first half.
The company’s chairman and CEO told the AGM that earnings will decline in the December half, and for the year as a whole they will be more skewed to the second half.
It will be the second successive half yearly profit fall for the group after it saw a 25% plunge in the six months to June this year.
The weak first half has resulted from a quiet period for new orders early in the year, but the company says there has been a pick up in recent months.
"While the first half of the year was quiet in terms of new contract awards, there was a strong flow of awards in the last six months," CEO Andrew Wood told the AGM.
"Looking at our company’s outlook, the flow pattern of awards will see earnings in FY14 being more heavily biased to the second half than in recent years.
"That is, we expect our first half FY14 earnings to be lower than those for the prior corresponding period.
"However, despite ongoing challenges in the markets in which we operate, we can confirm the outlook we provided with the full year results, which was:
"While recognizing the uncertainties in world markets, we expect our geographic and sector diversification to provide a solid foundation to deliver increased earnings in FY2014.
"We have a strong growth strategy in place which includes developing our skill set and geographic footprint across our customer sectors. We plan to achieve this through organic growth as well as by taking advantage of acquisition opportunities that provide value for shareholders," Mr Wood said.
No estimate was given for the expected fall in first half profit.
The shares dropped more than 6% at one stage and ended at $22.10, down 2.9% or 66c. They had been up 2.1% before the AGM started, so the news surprised the market.
WOR YTD – WorleyParsons says profit to slide in H1
WorleyParsons warning means first half earnings will be lower than the $155.1 million the company earned in the first half of the 2012-13 year which was up slightly from the $151.9 million in the first half of the 2011-12 year.
The company reported a net profit after tax attributable to members was $322 million, down 7% from 2012’s $353.2 million, meaning second half earnings fell 25% to $167 million from just over $201 million as profit margins came under pressure as customers cut orders.
It is not the first time the company has issued this sort of warning because of the lumpy nature of orders in the resources business.
But the question now for investors is whether this is an early tip to the market from an industry leader to the rest of the huge mining services sector to expect more soft earnings warnings.
WorleyParsons issued an earnings downgrade for the 2012-13 year’s full result in early May. Other smaller companies had issued warnings a bit earlier, but WorleyParsons was one of the industry’s majors to go public.
