Worley Shares Amongst ASX 200 Laggards: Here’s Why

Worley shares (ASX: WOR) fell back sharply today, sitting among the ASX 200’s worst performers after the engineering giant doubled its estimated earnings hit from Middle East disruptions and flagged a significant foreign exchange drag on FY26 results.

Worley’s share price closed out the day 9.70% lower at A$11.08 o, placing the stock firmly among the day’s worst three performers on the bluechip index. The decline extends a volatile period for holders of WOR, who have seen the shares 21% from Jan to March lows, bouncing 30% in the following three months, only to pull back 15% from there. Whipsaw action that is not for the faint of heart.

Why are Worley shares down?

The engineering services provider now expects the ongoing Middle East conflict to deliver an adverse impact of up to A$60 million on FY26 underlying EBITA, a significant increase from its previous estimate of A$30 million to A$40 million issued in April. Management attributed the larger hit to increased uncertainty and an extended conflict duration beyond initial assumptions, with customer delays on commencing and awarding new projects continuing to mount across the region.

Critically, Worley emphasised that no Middle East contracts have been cancelled to date. The impact stems entirely from timing delays as customers defer decision-making and slow project execution amid the unstable security environment. While this distinction preserves the underlying demand case, it does little to soften the near-term earnings headwind, as delayed projects directly impair revenue visibility and workforce utilisation, key drivers of margins in the engineering services business model.

Adding to the operational challenges, Worley flagged an additional estimated A$50 million translation impact on FY26 underlying EBITA from a stronger Australian dollar in the second half of the fiscal year. This foreign exchange headwind will reduce the translated value of overseas earnings when converted back into Australian dollars, compounding the conflict-related operational impacts. Management noted that the FX estimate remains subject to further exchange rate movements throughout the year, introducing another layer of uncertainty into the earnings outlook.

The combined impact of up to A$110 million represents a material swing against Worley’s FY25 underlying EBITA base of approximately A$823 million. That figure reflected solid 10% year-on-year growth and had underpinned management’s earlier expectations for moderate growth in FY26. Today’s update effectively resets those expectations and forces markets to recalibrate their earnings models downward.

Worley’s update also raises questions about guidance credibility. This marks the second time in three months that the company has revised its conflict impact estimate upward, and the doubling of the figure suggests management may have underestimated the conflict’s duration and intensity in its initial assessment. For markets already on edge about downgrade risk, the pattern of upward revisions creates an overhang, as participants now must consider whether A$60 million represents a ceiling or merely the latest increment in an evolving situation.

What Lay Ahead

Looking ahead, Worley continues to monitor the evolving geopolitical landscape with caution. Management acknowledged that while recent diplomatic developments in the Middle East show some promise, significant uncertainty remains regarding project timing and regional stability. The company is actively supporting customers and staff in affected regions while adapting resource planning and contract strategies to manage risks.

From a strategic perspective, Worley’s broader positioning remains focused on operational resilience and leveraging its global footprint through diversified service offerings. The company maintains exposure to multiple geographies and end markets, including the Americas, Europe, and Asia-Pacific, which continue to generate earnings outside the disrupted Middle East region. This diversification provides a degree of insulation, though it cannot fully offset the magnitude of the current headwinds.

The Middle East conflict’s broader economic impact lends context to Worley’s difficulties. Independent estimates suggest tens of billions of dollars in damage to regional energy infrastructure, with ongoing constraints on oil and gas supply and stretched capacity for repairs. This environment makes it rational for customers to delay major project commitments until visibility improves, even if underlying strategic demand for energy and chemicals infrastructure remains intact over the longer term.

Forex dynamics add another variable to the outlook. The stronger Australian dollar that is driving the A$50 million translation headwind reflects relative strength in commodity prices and domestic economic conditions. Should global macro conditions shift or the Reserve Bank of Australia’s policy stance change, currency movements could work in Worley’s favour in future periods, though such scenarios remain speculative at this stage.

For bulls, the core investment thesis hinges on the distinction between deferred and destroyed demand. No project cancellations suggest customers still intend to proceed with planned work, implying revenue is pushed out rather than permanently lost. If geopolitical conditions stabilise faster than currently feared, delayed projects could flow through to earnings in later periods, potentially setting up a backlog-driven rebound. The company’s exposure to the global energy transition and decarbonisation themes also remains a longer-term structural tailwind that today’s news does not fundamentally alter.

Bears, however, can point to mounting execution risk and the possibility of further negative revisions if the conflict persists or intensifies. The pattern of upward revisions to the impact estimate undermines confidence in management’s ability to forecast in volatile conditions, and the lack of clarity on when delayed projects will restart keeps a wide range of outcomes in play.