Weir Pumps Up Earnings 27%

LONDON -- Weir Group (ISE: WEIR.L) announced record-setting profits through the first half of the year, with operating profit growing 33% to 248 million pounds on the back of 27% revenue growth and improving profitability. The company rewarded shareholders with an 11% increase of the interim dividend.

While the first-half performance looked strong, order intake was only 8% up on last year as low demand for new wells in the North American shale gas market hit orders for Weir's pumping equipment. A slowdown in this market was expected as an oversupply of natural gas, owing to the booming success of shale gas production, pushed prices to historical lows.

However, the depth of the slowdown caught management a bit by surprise, and they were forced to lower expectations for the year, now calling for profit before taxes to increase between 11% and 16%, as opposed to nearly 19% previously expected.

While the U.S. shale gas market may bring pain over the next several quarters, Weir is enjoying solid growth in its other divisions. In fact, the mining division -- the company's largest by sales -- reported orders growth of 27% in the first half of the year. Management expects growth to moderate in this division over the next few years -- an outlook supported by subdued capital expenditure outlooks from the likes of Anglo American, BHP Billiton, and Rio Tinto -- but the company's maintenance and replacement services should remain busy for years to come.

Despite the short-term pressures in the shale gas industry, Weir's target markets of energy and mining extraction and power production should benefit from growing demand for the next several years. With a forward price-to-earnings ratio of 11, the shares don't look overly expensive, given the potential for long-term growth.

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