Shares in Wood Group plummeted by almost 10% after the energy services giant warned over future profits in its engineering division.
The Aberdeen-headquartered firm told investors that it expected earnings before interest, tax and amortisation (EBITA) in the unit to be around 15% lower next year due to a combination of project delays offshore and a weakness of the upstream oil market in Canada.
The warning came as the company issued a pre-close trading update for the year to December 31.
Full-year results will be issued in mid-February.
The company said it had delivered good growth in 2013 and was confident that its performance for the full year would be in line with expectations.
It expects further overall growth next year as a result of its operational and capital expenditure plans for the business and the anticipated contribution from newly acquired subsidiaries.
The latest analyst consensus was for Wood Group to post a $427 million pre-tax profit for 2013 and for that figure to rise to $474m next year.
In its update, the company said earnings growth in the engineering division this year was in line with previous guidance and was expected to rise between 10% to 15%.
The company remains actively involved in two major Gulf of Mexico projects and the Iver Aasen scheme in the North Sea.
However, Wood said major upstream engineering projects including Mafumeira Sul and Icthys were beginning to wind down, the market in western Canada remained weak, and replacement project prospects coming onstream next year were not of the same scale as those nearing completion.
The company warned: “The completion of significant projects and some deterioration in the themes we set out in our interim report in August, principally project delays offshore together with upstream weakness in Canada, is expected to result in a reduction in Engineering EBITA in 2014 of around 15%.”
Wood also confirmed that earnings in its GTS gas turbine division would be lower this year than last. It said all gas turbine related activity would be held in joint venture companies by the middle of next year, and performance in the 12 months ahead was likely to be flat.
However, the firm said its PSN division continued to perform well throughout this year, with growth coming from the booming US shale gas market.
The business unit has also seen strong demand from the North Sea, where it secured nine major contract renewals during the year, but it said its international operations continued to be held back by an Omani-based contract. The company said underlying performance improved in the country, but losses continued and further actions were being taken to address the issue.
Despite the profits warning, Wood Group said it had a strong balance sheet and would continue to pursue growth organically and through strategic acquisitions.
“We remain confident of achieving 2013 performance in line with expectations,” the firm stated.
“In 2014 the mix of opex and capex activities in our business, and the contribution from completed acquisitions, is expected to lead to growth overall, with growth in Wood Group PSN offsetting the reduction in Wood Group Engineering.”
Shares in Wood Group were down 79p at 718p at Thursday’s close.