The Worley Ltd (ASX: WOR) share price took a dive this morning after issuing a disappointing profit update.
It looks like the oil price recovery from COVID-19 may be slipperier to grasp than investors had originally thought!
The WOR share price crashed 13.2% to a three month low of $9.91 at the time of writing. This makes the engineering contractor the worst performer on the S&P/ASX 200 Index (Index:^AXJO) by a country mile.
The next worse ASX stock is the Lynas Rare Earths Ltd (ASX: LYC) share price with a 5.7% plunge followed by the Janus Henderson Group CDI (ASX: JHG) share price with its 4.7% drop.
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WOR share price hit by profit downgrade
The Worley share price is worse for wear as its first half profit is expected to be way down from the same time last year.
Management is predicting that group revenue will range between $4.4 billion and $4.5 billion in 1HFY21.
Interim underlying earnings before interest, tax and amortisation (EBITA) will fall to $200 million to $210 million.
This compares to 1HFY20's revenue of $6 billion and EBITA of $366 million. The impact of COVID is laid bare for all to see!
Big drop from pre-COVID
Management is blaming the pandemic for the poor result. It noted that several projects have been deferred but tried to put a positive spin on things.
While project commencements have been pushed back, Worley is seeing few cancellations. Management is convinced these deferred projects will restart when the global economy improves.
Worley taking a spin on the poor update
It also was quick to point out that the group "continued to generate strong operating cash flow" and cut net debt by $1.2 billion to its lowest since its ECR acquisition in 2018.
Further, the earnings weakness is partially offset by cost savings from a headcount reduction to around 47,600 and synergies from the ECR transaction.
If that wasn't a "rosy" enough picture, management believes the new US Biden presidency is great for its business.
Worley's energy transition
Worley is in the process of pivoting towards renewable energy projects and away from carbon.
"The clear shift in the political environment in the USA as well as ongoing policy rollout and anticipated increases in investment in the UK, Europe and Canada provide near-term opportunities in hydrogen, electrification, carbon capture, offshore wind and nuclear, while North America remains buoyant in renewable fuels and circular economy projects," said Worley.
Foolish takeaway
While the medium- to longer-term outlook is positive for Worley, the trouble is the near term uncertainty.
The pivot takes time and the global economic recovery from COVID remains highly uncertain.
What's more, while the positive operating cash flow is reassuring, it's still down from the $277 million it generated in 1HFY20.
Investing in Worley requires a lot of patience, in my view. And after three years of disappointments, that's a lot of ask of shareholders.
