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Wood Group’s (LSE:WG.) share price gained 4.76% today on the London Exchange, closing at 660.00, up 30.00 points from yesterday’s close of 630.00. Today’s increase continues to build on a pattern that started on 14 January when the stock began recovering after hitting a 52-week low of 527.00. More than 2.5 million shares traded hands today, the company’s second most active trading day in 2015 and the second highest since 18 February 2014. Coincidentally, that date, like today’s, featured the release of the the company’s full year results for the previous year.
Being a provider of “a broad range of engineering, production support, maintenance management and gas turbine overhaul and repair services to the oil & gas and power generation industries worldwide to support the full life cycle of oil & gas and power generation facilities” is normally a pretty decent gig, even in the worst of times. And it looks like the worst of times may be upon us as Wood’s customers reduce capex spending to withstand the slings and arrows of misfortune that the low price of crude oil is throwing at them. Reductions in oil producers’ capex means, to some extent, a reduction in revenue for the Wood Group. Nonetheless, the company’s report pulled no punches, saying that it is “well-positioned” to weather this economic storm.
2014
For the year ended 31 December 2014, Wood Group reported a 7.8% increase in revenue from $7.06 billion in 2013 to $7.62 billion in 2014. Pre-tax profit from continuing operations increased 10.9% to $414.5 million, up from $373.7 million in 2013. EBITDA increased 3.1% to $549.6 million. EPS was up 8.0% to 87.9 cents per share. The shareholder dividend was set at 27.5 cents, up a full 25% from last year.
The board noted that the company’s balance sheet is strong and structured to ensure “both security and flexibility,” which companies of this sort will need to be as long as OPEC keeps oil prices low.
2015
The board noted that it is “taking a number of actions in the lower price environment.” Wood will focus on:
- Helping customers achieve their objectives of decreased costs and increased efficiency.
- Helping customers improve performance without adversely affecting safety or the integrity of their assets.
- Increasing Wood’s own operational efficiency.
- Managing and reducing operational costs by $30 million more than in 2014.
- Reducing credit risks.
- Making smart acquisitions.
How Wood Will Reduce Costs
Cost reduction almost always involves headcount reduction. CEO Bob Keiller has already indicated that, “We will be reducing our headcount in areas of overhead spend,” as well as imposing new limits on corporate travel and spending with other companies. Any definitive actions will be preceded by a 45-day period of study and analysis intended to ensure that the company makes the right and best moves and to avoid unintended consequences. Keiller said that ,”We are going into a headwind, but we are going in with some momentum.”
There is nothing that investors can do about the headwind, unless it is putting their money where there is enough momentum to weather it. That’s why Wood’s share price is up today. It’s not the results per se. It’s the preparedness for the headwinds.
