WorleyParsons (WOR) shares tumbled in the wake of a gloomy outlook issued by the mining, oil and gas engineering and services specialist.
The shares slumped more than 14% at one stage before closing at $9.86, down a very sharp 12.2% on the day.
They were lower last December in the huge sell-off as world oil prices fell sharply in the run up to the Christmas-New Year break, but apart from that, that’s the lowest they have been for years.
Driving the shares lower was a warning from the company that things were going to get tougher in coming months as its oil and gas industry clients cut spending to try and cope with the downturn in oil and gas prices.
Worley yesterday reported a 7% fall in net profit to $104.3 million for the six months to December 31, which could be about as good as it will be for the company for sometime, judging by some of its commentary yesterday.
“Since the annual general meeting in October, the significant decline in the price of crude oil has caused hydrocarbons sector customers to reconsider investment plans in the near term,” the company said in a statement to the ASX.
“Market conditions make it difficult to accurately predict revenues and gross margin.
“Modest declines in the company’s revenue and gross margin are currently expected, but the company anticipates the benefits of actions already taken, and its continuing program of overhead reductions, to temper the effect on earnings,” directors said.
But the company also told investors it remains confident (a message that didn’t get through to investors yesterday, judging by the sharpness of the fall int he share price) about its ability to make it through the challenging times.
"Having taken decisive action to ensure the business responds to market conditions and customer needs, the company is well positioned to manage through declines in market activity expected in the near term,” directors said.
"Management will continue to balance the long-term sustainability of the business with the need to adjust our operations by reducing overheads. As in past years, the Company expects earnings to have a bias towards the second half.
“The Company is positioned to take advantage of opportunities that may arise in the market,” directors said in yesterday’s statement.
Despite the gloom WorleyParsons will pay ann unchanged interim dividend of 34c a share, which is a sign of confidence in the future, or an act by a board determined to maintain the support of shareholders.
That’s a payout ratio of well over 70% of net profit, which seems high given the uncertain outlook for the rest of the year.
WOR 1Y – WorleyParsons maintains dividend despite weak profit result
Group revenues dropped 8.4% to $4.4 billion in the first half as projects were completed and the number of new projects requiring engineering services fell.
The company again mitigated some of that fall by intensifying its cost cutting, which helped lift profit margins to 5% from 4.7% in the previous first half year period of 2013-14.
The company’s worldwide employment fell 500 in the half year to 35,600.
Profits in WorleyParsons’ core hydrocarbons business, which contributes three quarters of group revenues, rose 19% to $247.5 million. That will come under pressure this half.
But profits in the group’s minerals, metals and chemicals division halved to $28.4 million while the company’s infrastructure division broke even compared to profits of $23.8 million a year earlier.
WorleyParsons did not give a specific outlook for the full year, saying only that it was “well positioned" to managing expected declines in market activity and would continue to cut costs.
Management did pat itself on the back though for the first half result:
“The actions we took nearly 12 months ago to position the business to take advantage of market conditions have helped us to deliver a solid result despite declining revenues. We have improved margins in the first half through an intense focus on delivering what we promise to our customers and prudently containing our costs. The benefits of the restructure will continue to flow into the second half,” the report said.
“We remain focused on taking costs out of the business, continuing to improve our delivery of services to our customers and returns to our shareholders in what we expect to be challenging conditions in the second half. Our business remains relatively resilient through our strategy of sector, geographic and service offering diversification,” it added.
But it balanced this optimism with these comments:
“The significant decline in the price of crude oil has caused hydrocarbons sector customers to reconsider investment plans in the near term….but the company anticipates the benefits of actions already taken, and its continuing program of overhead reductions, to temper the effect on earnings."
WorleyParsons said conditions in the minerals and metals sector “remain flat," with mining companies continuing to cut costs and budgets for new projects as oversupply of many commodities keeps prices low.
Tough times ahead I’d say for all the positive commentary from then company.
