SNC-Lavalin stock falls 5% on earnings downgrade
Hospital and road projects are money-losers, company says
Engineering giant SNC-Lavalin has lowered its earnings forecast for fiscal 2013, citing restructuring of its European operations and some money-losing legacy projects.
Montreal-based SNC said it now expects consolidated net income in fiscal 2013 to be in the range of $10 million to $50 million or five to 35 cents a share. That falls well below its previous guidance of $220 million to $235 million, or $1.45 to $1.55 per share.
SNC-Lavalin stock fell more than five per cent, or $2.24, at $41.89 in early trading Wednesday. It closed the day down $2 at $42.13.
The company's management said its long-term prospects remain positive and it expects to move beyond its unfavourable projects in 2014.
"Certain legacy fixed-price contracts entered into by the company between 2010 and 2012 and the ongoing softness in the mining sector unfortunately continue to stress our performance in 2013," president and CEO Robert Card said Tuesday night.
"Going forward, we will remain focused on winning and delivering high-margin projects and implementing measures to restore our SG&A (selling, general and administrative expenses) to historical levels, or better, with the aim of better positioning SNC-Lavalin for growth."
For the second quarter of 2013, SNC-Lavalin reported a net loss attributable to SNC-Lavalin shareholders of $37.7 million.
In the third quarter, SNC cited hospital and road projects and fixed-price contracts in North Africa as problem areas, but was not specific.
However, Maxim Sytchev of Dundee Capital Markets said McGill University Health Centre was likely the money-losing hospital project. It was delayed by the Quebec construction strike earlier this year.
Sytchev said SNC has a much stronger management team with Card as CEO and Alain-Pierre Raynaud as CFO and expressed confidence the company would turn a corner in 2014.
Former CEO Pierre Duhaime resigned in March 2012 after a probe revealed that he signed off on payments to undisclosed agents, breaching the company's code of ethics.
In an effort to clear its reputation after a series of scandals, the company adopted a new ethics and compliance framework in September.
SNC-Lavalin is on course to reduce its investments in infrastructure assets and announced the possible disposal of a minority interest in AltaLink, which owns more than half of Alberta's electricity grid. Despite the poor performance of the mining sector, the company said it is targeting growth in the resources sector, including oil and gas, mining and metallurgy, and environment and water. It has taken a $75-million writedown on a reorganization of its European operations.
Sara O'Brien of RBC Capital Markets expressed concern that the continuing write-offs could be troubling to credit rating agencies and lenders.
SNC-Lavalin will report third-quarter results on Nov. 1.
with files from Canadian Press