Today I am looking at three FTSE 100 plays that look on course to toil.
WM Morrison Supermarkets
Beleaguered grocery play Morrisons (LSE: MRW) has tried to pull multiple rabbits out of hats in recent years in a vain attempt to just stand still. From introducing round after round of price cuts, to extending opening hours, spending big on store refurbs and even introducing a loyalty card scheme, the Bradford firm has failed time and time again to wave goodbye to its troubles at the till.
This trend was confirmed again by Kantar Worldpanel, which showed Morrisons’ market share slide again in 12 weeks to March 29, to 10.9% from 11.1% previously as sales dipped 0.7%. While Tesco’s discounting has at least proved marginally successful in recent months, its rivals’ costly exercise is failing to make headway. And all the while the budget chains continue to eat into the customer base — Aldi is now the UK’s sixth most popular chain, Kantar notes.
So quite why the City expects Morrisons to rebound from the 53% earnings decline for February 2015, with growth of 8% and 20% in 2016 and 2017 respectively, is beyond me I’m afraid. The supermarket is hoping that new chief executive David Potts will be able to breathe new life into its sales performance. But with the British grocery space continuing to fragment at a breathtaking rate, and the firm already having wheeled out a number of failed initiatives to boost revenues, it is hard to see quite how Morrisons can turn around its ailing fortunes.
Rio Tinto
I believe that Rio Tinto (LSE: RIO) (NYSE: RIO.US), like much of the mining sector, is set to endure a prolonged period of earnings weakness as commodity markets sag under the weight of chronic oversupply.
The business, like major low-cost operators such as BHP Billiton, are looking to strangle the competition by flooding the market with cheap material — indeed, Rio Tinto reported earlier this month that iron ore output surged 12% during January-March to 74.7 million tonnes as its Australian operations ramped up production. And the amount of hard coking and thermal coal it dug up also galloped higher during the period, by 10% and 4% respectively.
But while the global economy continues to drag along on its belly, and most significantly demand from resources glutton China wallows, the growing mountain of unwanted material is likely to keep prices subdued in the coming years and with it earnings growth for the miner.
This view is shared by the City, which expects Rio Tinto to record a 45% bottom line dip this year. And although the fruits of significant restructuring are anticipated to push earnings 20% higher in 2016, I reckon this is a far-fetched scenario as Rio Tinto’s labours will remain overshadowed by an underperforming top line.
Weir Group
Like Rio Tinto, I believe that Weir (LSE: WEIR) is set to also suffer the effect of collapsing commodity prices for some time to come. The pump maker specialises in designing equipment for the energy and mining sectors, and the effect of collapsing crude prices in particular has really hit the Scottish firm hard in recent times, specifically as North American rigs have shut down.
The firm warned this week that orders from the oil and gas segments drooped 23% in January-March — in turn driving group orders 9% lower — and which are expected to decline further in the current quarter. Accordingly the number crunchers expect the profits picture to get a lot worse before it gets better at Weir, the firm forecasted to follow two years of single-digit earnings slips with a chunky 23% slide in the current 12-month period.
An 8% bounceback is pencilled in for 2016, but given that customers across the resources sectors look set to keep on conserving cash — a situation which is likely to worsen should deteriorating supply/demand dynamics push commodity prices still lower — I reckon that Weir is set to endure an extended period of earnings woe.
