SNC-Lavalin swung to a $72.7-million loss in the third-quarter, just weeks after warning that its results would be punished by money-losing legacy contracts, weak mining markets and a European restructuring charge.
The Montreal-based engineering giant lost 48 cents per share for the period ended Sept. 30, one penny worse than analyst forecasts.
SNC-Lavalin (TSX:SNC) earned $114.1-million or 75 cents per share a year ago.
“The decisions we have made during the third quarter, while difficult, were necessary,” stated president and CEO Robert Card.
He said actions taken following an analysis of its projects should reduce future earnings volatility and restore selling, general and administrative expenses to historical levels.
The company, which has been battling ethical issues for nearly two years, also announced plans to sell a minority interest in the Astoria II power plant in New York and seek buyers for a stake in AltaLink, its Alberta transmission line operations.
“The issues to resolve at SNC-Lavalin are not simple, but we are rapidly making real progress toward improving the performance of the company and building a strong platform for future growth,” said Card.
Excluding higher profits from its concessions assets, SNC’s core operations lost $128.4-million, compared to an $83.1-million profit in the prior year. Proceeds from its investments in Highway 407, AltaLink and other concessions investments nearly doubled to $55.7-million, from $30.9-million in the 2012 quarter on a 40-per-cent revenue boost.
Total revenues in the quarter were down about $300-million to $1.94-billion, while its order backlog was $9-billion, compared to $10.1-billion at the end of December 2012.
The company said the weaker quarterly results reflected an operating loss in its infrastructure and environment segment, mainly due to cost reforecasts, particularly in the hospital and road sectors, plus a lower contribution from its power operations due to projects, including one in North Africa. It recorded a $68.2-million restructuring charge and goodwill impairment in the quarter related to its European reorganization.
SNC-Lavalin expects its 2013 net income will range between $10-million and $50-million, well below its previous guidance of $220-million to $235-million.
In the first nine months of the year, it lost $56.8-million, compared to a $212.1-million profit in the prior period. Its core operations lost $214.5-million while it earned $157.7-million from infrastructure concessions.
Analyst Maxim Sytchev of Dundee Capital Markets described Friday’s results as a “non event” given the company’s revised guidance just two weeks ago that prompted a downgrade from DBRS.
“We are just hoping that the kitchen sink pre-announcement now sets up a cleaner stage for 2014 and 2015,” he wrote in a report.
Sytchev said the large earnings boost from infrastructure concessions reinforces his view that they are undervalued and that earnings expectations for its core operations are too high. Concessions revenues increased due to the improved performance of AtlaLink, Algerian power plant Shariket Kahraba Hadjret and a higher dividend from the 407.
“The engineering and construction business will take time to play out given the commodity cycle volatility, difficult projects, quiet on the awards front...(but) the investment thesis on the name is anchored by Tier 1 concessions portfolio and still strong balance sheet.”