Weir Warns of Revenue Dip

Uncertainty in oil and gas industry to hurt revenue, margins.

Engineering company Weir Group Plc said uncertainty in the oil and gas industry would significantly reduce its 2015 revenue on a constant currency basis despite aggressive cost-cutting, sending its shares tumbling on Wednesday.

Weir, which makes valves and pumps for the energy and mining industries, has been hit by a slowdown in North American oilfield activity as crude oil prices remain depressed and explorers and producers slash capital spending.

The number of rigs drilling for oil in North America last week was the lowest since July 2011, a survey by oil services firm Baker Hughes showed.

"We are assuming this will be a longer-lasting downturn than those that we experienced in 2012-13 and 2009," Weir Chief Executive Keith Cochrane said on a media call.

Cochrane said Weir was planning for a 50 percent reduction in the number of North American rigs drilling for oil, and expected no meaningful pickup in activity until 2017.

The Scottish firm, whose North American operations accounted for about a third of its 2014 revenue, also said it expected operating margins to fall this year.

Weir's stock was the top loser on the FTSE-100 index , dropping as much as 10.6 percent to 1,666 pence.

Analysts said the company's outlook was more cautious than expected.

"Customers are asking for double-digit price cuts, which management note they will have to participate in to some degree," Goldman Sachs analysts said in a note.

The brokerage assumes a 10 percent cut in prices.

Analysts on average expect Weir's 2015 revenue to fall about 3 percent to 2.37 billion pounds ($3.67 billion), according to Thomson Reuters I/B/E/S.

The company's cost-cutting measures, which began early last year, include cutting 1,200 jobs, with about 650 in North America.

Weir's pretax profit fell 2 percent to 409 million pounds in the year to Jan. 2, while revenue was nearly flat at 2.44 billion pounds. The company's operating margin fell to 18.4 percent from 19.2.

Reporting by Roshni Menon and Abhiram Nandakumar