The global rout in commodities and sputtering economic growth in many parts of the world is taking a toll on SNC-Lavalin Group Inc., forcing a major cut in its employee head count as the multinational company tries to carve out more sustainable operations for the years ahead.
Canada's largest engineering and construction firm said Thursday it would slash 4,000 jobs as it deals with a collapse in global mining activity and stunted economic growth, particularly in emerging markets such as China. Montreal-based SNC also revised its 2014 profit outlook sharply downward as it reported third-quarter earnings that missed analyst estimates.
The stock tumbled 8 per cent in trading to $42.34, its biggest one-day loss since Feb. 28, 2012. That's when the company disclosed an independent investigation into undocumented payments that subsequently ballooned into a wider corruption scandal.
"Investors probably weren't expecting such a significant reduction in head count," said Denis Durand, a partner at Montreal-based Jarislowsky Fraser Ltd., SNC's largest shareholder. "The size of this surprised."
The moves are part of a five-year effort by SNC chief executive Robert Card to revamp the company as he tries to turn it into one of the world's largest engineering players and close the door on corporate conduct trouble that has forced out several senior executives.
The company paid $2.1-billion in June to acquire British-based oil and gas services specialist Kentz Corp. and strengthen its capability in higher-margin oil and gas. SNC management said it was not overly bothered by the recent drop in oil prices because its clients have long-term planning horizons.
But a major global slowdown in the mining sector has hurt, creating a "ripple effect" through other industries at a time economic growth is sputtering in many parts of the world, management said.
"Between economic headwinds and other issues, we're seeing it take longer than we had hoped for to recover to the kind of margins that we like to see in the legacy business," Mr. Card said on a conference call, adding the job cuts have been in the works for months and are spread across the company's business units. He called them "pockets of resources" for which management could not see a profitable role over the mid to longer term.
The job cuts amount to about 9 per cent of the company's 45,000 worldwide workforce. Roughly three quarters of the reductions will affect employees outside Canada in markets that are currently more challenging, SNC said.
"We're not in the business of downsizing," Mr. Card said. "We're only doing it in this case because we felt we had to preserve a Canadian national champion that's going to be a big successful [engineering and construction] company in the future."
The engineering firm said it will take charges worth about $300-million over the next 18 months to carry out the restructuring and save an expected $100-million a year in operational efficiencies starting in 2015.
"While this is obviously a very painful undertaking, proper alignment of head count versus revenue opportunities and operating environment is paramount for the long-term positioning of the company's engineering and construction business," Dundee Capital Markets analyst Maxim Sytchev said in a research note.
SNC is also revising its outlook downward. It now expects 2014 profit per share to come in at between $2.15 and $2.40. That's down from an earlier target of $2.80 to $3.05. The revision does not take into account the eventual gain on the sale of SNC's interest in Alberta power transmission company Altalink.
The company continues to be hampered by the fallout of unprofitable legacy contracts signed by previous management. Those contracts are now worth about $500-million.
The staff changes came as the company reported quarterly earnings that missed Bay Street forecasts. Net income attributable to shareholders came in at $69-million or 45 cents a share, reversing a loss in the year-earlier period of $72.7-million or 48 cents. Analysts surveyed by Bloomberg had been expecting an 81-cent profit for the quarter. Revenue for the quarter was $2-billion while the backlog stood at $12.5-billion.