In a major development, Finland’s Wartsila Oyj (WRT1V.HE) missed second-quarter forecasts last Thursday and warned that it expected demand to weaken for both its marine and energy businesses, sending shares in the engineering firm to a three-year low, reports Reuters
What is it?
- Comparable operating profit in April-June fell to 113 million euros ($127 million) from 123 million euros a year earlier and missed the 132 million euro forecast by analysts in a poll.
- Sales fell to 1.22 billion euros from 1.25 billion euros and missed the 1.37 billion euros forecast by analysts.
- Its shares were 10% lower at 11.23 euros by 0845 GMT, down almost 20% in the past year to their lowest since June 2016.
The Primary Problem Area
Citi analysts said sales at the energy business unit were “the standout disappointment in the quarter” and said they expected double-digit cuts to consensus estimates to reflect the downgrade to the outlook and the second-quarter earnings miss.
Second-quarter sales at the energy unit, which makes power plants, dropped 26% from a year ago to 416 million euros.
Demand Outlook Cut
Wartsila cut its demand outlook for its energy business to “soft” from “solid” as economic uncertainties stemming from risks of trade wars, sanctions and climate debates hold back customer investment.
“The decision-making is slower,” Wartsila Chief Executive Jaakko Eskola told Reuters. “The uncertainties have increased.”
Wartsila also downgraded its outlook for its marine business to “soft” from “solid”, due to lower vessel contracting volumes and a decline in demand for scrubber solutions from last year’s exceptionally high level.
Scrubbers Demand Boost
Demand for so-called scrubbers which strip out sulphur from marine fuel has boosted Wartsila and its Swedish rival Alfa Laval (ALFA.ST) in the past few years as shipowners prepared for stricter sulphur emissions regulations from next year.
How long will the demand sustain?
But Alfa Laval reported a fall in quarterly orders this week, hit by weaker-than-expected demand for ship exhaust cleaners and pumping systems.
Wartsila cut demand outlook, but said a large number of deliveries, including for scrubbers, was scheduled for the end of the year, giving management confidence in the strong short-term outlook.
“The rest of the year, and especially the fourth quarter will be record-high,” Eskola said.
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Source: Reuters
