SNC-Lavalin swings $32.1M profit despite lower revenues
Revenues were nearly $1.7 billion, down from $1.94 billion in the year-ago period
Engineering consulting and construction firm SNC-Lavalin continued to face challenges in the second quarter, missing expectations despite swinging to a $32.1 million profit on a 12.7-per-cent drop in revenues.
The Montreal-based company said net income attributable to shareholders equalled 21 cents per share for the three months ended June 30, compared to a 25 cents per share or $37.7 million loss a year earlier.
The results included $25.9 million of expenses related to the proposed $2.1-billion acquisition of U.K.-based Kentz Corp. Ltd. a global engineering firm that provides services to the oil and gas sector, announced in June.
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Excluding one-time items, adjusted earnings equalled 38 cents per share, well short of the 63 cents per share forecast by analysts.
Revenues were nearly $1.7 billion, down from $1.94 billion in the year-ago period, as higher concessions revenues were more than offset by decreases in its core engineering and construction division.
SNC-Lavalin CEO Robert Card described 2014 as a year of rebuilding, pointing to the agreement to sell AltaLink, the Alberta electric utility, and the proposed acquisition of Kentz, as milestones.
The engineering and construction group lost $46.9 million in the quarter, an improvement from the $104.7 million loss in the June 2013 quarter.
Infrastructure concession investment profits increased 17.8 per cent to $78.9 million due to higher net income at AltaLink, which is being sold to a division of Berkshire Hathaway, and higher dividends from its stake in Ontario's Highway 407, a toll highway.
Selling and administrative costs continued to fall, dropping 8.9 per cent in the quarter.
The revenue backlog dipped slightly since Dec. 31 to $8.2 billion. That included $601.9 million in legacy that contribute no profits, a 17 per cent decrease from the first quarter. However, the backlog is down 15 per cent from the second quarter of 2013.
'Not a lot of silver lining in the short-term'
The company reiterated its EPS guidance for the year at $2.80 to $3.05, excluding the gain on the sale of AltaLink and the impact of the Kentz purchase.
It said the outlook is based on the expectations that challenges will continue due to legacy projects and softening commodity prices, offset by increased contributions from concessions and operations & maintenance.
We remind investors that the heavy lifting in terms of cost cutting, backlog 'clean-up,' major acquisition and ICI divestiture is well underway.- Leon Aghazarian, National Bank Financial
Maxim Sytchev of Dundee Capital Markets said the results shows the impact of challenging projects.
"All-in, not a lot of silver lining in the short-term," the analyst wrote in a report.
He said the focus is now on a possible sale of its investment in Highway 407 and the potential return to normalized profitability in 2015 once projects, such as the $1.3- billion super hospital in Montreal, are completed.
Leon Aghazarian of National Bank Financial said the results look disappointing at first blush but the focus should remain on the outlook for 2015.
"We remind investors that the heavy lifting in terms of cost cutting, backlog 'clean-up,' major acquisition and ICI divestiture is well underway and we continue to look towards 2015 for the realization of these benefits," he said in a note.
On the Toronto Stock Exchange, SNC-Lavalin's shares lost $1.62 or 2.76 per cent at $57 in Friday morning trading.
With files from CBC