Spirax-Sarco Orders Climb as Earnings Drop on Stronger Pound

Spirax-Sarco Engineering Plc (SPX), a steam technology provider to industries from refining to brewing, said it won more orders to aid progress for the full year even as earnings slipped in the first half on the strong British pound.

Pretax profit fell 3 percent to 63.5 million pounds ($107 million) in the first half compared with a year earlier, the Cheltenham, England-based company said today in a statement. That missed the 67.7 million-pound average estimate from three analysts surveyed by Bloomberg.

The manufacturer of steam and pump technology said revenue rose 4 percent when adjusted for currency fluctuations as it benefits from manufacturers’ efforts to reduce energy and water consumption. It amassed a bigger backlog of work in the Asia-Pacific region, where the company had its slowest growth in adjusted revenue in the first six months.

“Our business is seasonal, with a bias toward the second half of the year,” Chief Executive Officer Nick Anderson said in a webcast. “We expect normal bias except in Asia Pacific, where the backlog will lend to a stronger second half in that region.”

Spirax-Sarco shares rose 3.9 percent to 2,798 pence as of 11:44 a.m. in London, paring the decline this year to 6.4 percent.

Asia Slowdown

The company, which gets about 26 percent of its sales from Asia, said that production rates slowed in China, Indonesia, the Philippines and Thailand in the first half. Operating profit in the region declined 16 percent to 16.8 million pounds.

“We saw marginal improvements in Korea later on in the period, although our markets typically lag the economic cycle by a few quarters,” Spirax-Sarco said.

The results reflect Spirax-Sarco’s “manifold attributes” and strong profit growth in the Americas and at pumps unit Watson-Marlow, Jack O’Brien and Ben Bourne, analysts at Liberum, said in a note to investors. They maintained a hold recommendation and predicted the shares will rise to 2,840 pence.

In the Americas, Spirax-Sarco boosted its operating profit margin to 19.8 percent from 18 percent through “improved price management, good cost controls and the benefit of exports from Argentina following the devaluation,” the company said.

Operating profit in the region was little changed at 11.9 million pounds, though the figure surged 35 percent when adjusted for currency effects. A stronger pound also hurt revenue in Asia, where sales declined 6 percent on a reported basis while rising 1 percent when adjusted for currency fluctuations.

“There is no change in the underlying performance of the business,” Anderson said, attributing sales results in the first half to the “already expected slowdown of emerging market economies,” as well as currency changes and delays in some projects.

“We are a very successful business and we’ve still got a lot of petrol in the tank to continue improving,” he said.

Anderson was promoted to replace Mark Vernon, who stepped down as chief executive officer in January.

To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net

To contact the editors responsible for this story: James Boxell at jboxell@bloomberg.net David Risser, Robert Valpuesta

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