Analysts are expected to downgrade full year forecasts for WorleyParsons after the engineering company’s first half result missed expectations.
WorleyParsons on Wednesday delivered an 18 per cent rise in net profit to $152 million for the six months to December 31 on the back of strengthening resources markets in Australia, Canada and United States.
IG Markets market strategist Stan Shamu said the result was below analysts’ consensus of $164.4 million.
Shares in the firm finished down 43 cents, or 1.44 per cent, at $29.37.
WorleyParsons described the first half result as strong but did not provide specific full year guidance other than to say it anticipated “good” growth. Chief executive John Grill said strong was better than good.
CBA Research analyst Ben Brownette said many analysts would downgrade their annual forecasts for WorleyParsons because they had expected earnings growth would be skewed towards the second half.
The median analyst forecast was for a 27 per cent rise in full year net profit, but that was too optimistic, Mr Brownette said.
“More than half the market needs to bring numbers down on the basis that it’s going to be, depending on how bullish they are, between five and 20 per cent (net profit after tax) growth,” he told AAP. “That’s why the stock is down, and it’s had a pretty good run in the past couple of months.”
Analysts were most concerned about a dip in margins for WorleyParsons’ key hydrocarbons business, which Mr Grill indicated were about to improve.
“Part of that (margin dip) is caused by some projects that we bid in the GFC (global financial crisis) that are being finished off at the moment that had lower margins, Mr Grill said.
He said there were a few projects where the company had to come to a compromised position with its clients in the finishing phase, which reduced the margins on those projects as well.
“The guidance we’ve given is that we believe that those projects will be complete by end of the six months that we’re currently in.”
Mr Shamu said economic uncertainty and currency fluctuations remained problematic for the company, which during the first half took a $10.1 million hit from the effect of foreign exchange movements.
WorleyParsons said in a statement on Wednesday that it expected continued growth in its hydrocarbons business, with the focus on natural gas projects expected to increase, while crude oil development opportunities were tipped to remain good amid strong oil prices.
“We’re anticipating an increase in … front-end opportunities arising from an increased capital spend on new field developments, particularly in the developing world, and we’re expecting the current high levels of capital spending in the offshore upstream and onshore unconventional markets to continue,” Mr Grill told reporters.
He said the company was stepping up its debt collection efforts as its clients – including big name firms – held off paying their bills for as long as possible.
“There is a general tightening, a general difficulty in collecting money even from the tier-one players in this current market,” Mr Grill said.
Such clients were effectively not being flexible, “strictly sticking to their terms of contracts”, he said.
WorleyParsons said smaller customers in the resources sector were experiencing project delays due to the tightening of available funds, while growth was weaker in the government and public infrastructure markets.
The company declared an interim dividend of 40 cents per share, franked to 79.3 per cent.
