Weir Group: EPS Surges Despite Lagging Revenues in Full Year 2024

As the financial year 2024 comes to a close, The Weir Group PLC (WEIR.L) has reported its full-year earnings, with a notable divergence between earnings per share (EPS) and revenues. While EPS beat market expectations, revenues lagged behind, raising questions about the company's long-term prospects. Let's delve into the details and explore the key drivers behind this disparity.



EPS Growth Outpaces Revenue Growth

The Weir Group's EPS growth has been robust, with an average annual rate of 17.2% over the past five years. In contrast, revenue growth has been more modest, averaging 8.9% annually. This disparity suggests that the company has been able to improve its operational efficiency and margins, leading to higher earnings growth compared to revenue growth.

Key Drivers Behind the Divergence

1. Operating Margins: The Weir Group's operating margins have been volatile, ranging from 15.53% in 2024 to 12.46% in 2023. This volatility in margins contributes to the fluctuations in EPS.
2. Taxes and Non-operating Items: Changes in tax rates and non-operating items can significantly impact net income and EPS. However, the provided information does not include specific data on taxes or non-operating items.
3. Share Count: The number of shares outstanding has decreased by 0.11% year-over-year, which can contribute to higher EPS if revenue remains constant.

Sustainability of Key Drivers

While revenue growth of 8.9% is relatively sustainable, given the company's position in the construction engineering sector and its diverse product offerings, the volatility in operating margins may not be sustainable in the long term. To improve the sustainability of EPS growth, The Weir Group should focus on maintaining consistent operating margins through cost management and operational efficiency.

Financial Position and Debt Management

The Weir Group's strong financial position, effective debt management, and efficient use of capital have contributed to its ability to deliver EPS growth despite lagging revenues. The company has maintained a strong current ratio of 2.32, a Debt/Equity ratio of 0.59, and an interest coverage ratio of 5.90. These factors, combined with a return on equity (ROE) of 17.75% and a return on invested capital (ROIC) of 8.05%, indicate that the company is effectively utilizing its capital to generate profits.

Conclusion

The Weir Group's EPS growth has outpaced revenue growth in recent years, driven by fluctuations in operating margins and other factors. While revenue growth is relatively sustainable, the company should focus on maintaining consistent operating margins to ensure the long-term sustainability of EPS growth. The Weir Group's strong financial position and effective debt management have contributed to its ability to deliver EPS growth despite lagging revenues. As the company continues to navigate the construction engineering sector, investors should monitor its operating margins and revenue growth to assess its long-term prospects.