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SNC-Lavalin Group Inc. SNC-T earnings fell last quarter, coming in below expectations due to thin margins in its flagship engineering division.

While swinging back to a profit following a loss in its fourth quarter, the engineering firm saw higher bidding and business development costs chip away at its net income, while sick workers and supply chain woes continued to stall certain projects.

The first-quarter results sparked a $3.17 or 11 per cent drop in share price to $25.66 in early afternoon trading on the Toronto Stock Exchange.

“We have seen a really, really strong demand for our services,” said CEO Ian Edwards, citing renewed interest in nuclear power amid the wrench in global energy markets thrown by Russia’s invasion of Ukraine. The company continues to make “good progress” on refurbishing parts of the Darlington and Bruce Power projects in Ontario, he said.

Under Edwards’ stewardship since June 2019, SNC-Lavalin has shifted its focus to design and engineering services and away from so-called lump-sum turnkey (LSTK) projects – fixed-price contracts under which companies have to eat any cost overruns. But those projects continue to weigh heavily on the company’s bottom line.

Even as Edwards reduced the LSTK backlog, COVID-19 and supply snarls helped drive a quarterly loss before interest and taxation of $30.5-million for that segment.

On one of its two major Ontario projects, some 62 per cent of the workers stayed home at some point last quarter due to the Omicron variant, Edwards told analysts on a conference call Thursday.

“Obviously we need people physically on the job,” he said.

Supply chain issues are causing problems with delays in receiving Chinese-made window glazing, pushing back the completion of above-ground transit stations.

“There’s consequential knock-on delays, because we obviously can’t fit out the station, we can’t finish it, we can’t do the mechanical and electrical work.”

SNC’s fixed-price contracts include Toronto’s Eglinton Crosstown light rail line, Ottawa’s Trillium Line rail extension and the greater Montreal area’s REM light-rail network.

Nonetheless, the company maintained its outlook for organic revenue growth in its services segments of four to six per cent this year, in line with its 2022-2024 targets.

SNC-Lavalin said its profit from continuing operations attributable to shareholders totalled $24.8-million or 14 cents per diluted share for the quarter ending March 31.

The result compared with a profit of $67.7-million or 39 cents per diluted share in the same quarter last year.

Revenue for the quarter totalled $1.89-billion, up from $1.82-billion in the first three months of 2021.

Professional services and project management revenue rose to $1.87-billion compared with $1.8-billion last year, while revenue from its capital business fell to $16.4-million compared with $21.7-million a year earlier.

On an adjusted basis, SNC-Lavalin said its professional services and project management business earned $39.4-million or 22 cents per share for the quarter, down from $83.4-million or 48 cents per share a year ago.

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