SNC Lavalin slashes 2013 profit outlook

MONTREAL — Stock in SNC-Lavalin Inc. dropped almost four per cent in early trading Wednesday, a day after the engineering giant sharply lowered its earnings forecast for fiscal 2013.

SNC said late Tuesday it now expects consolidated net income in fiscal 2013 to be in the range of $10 million to $50 million, as compared with previous guidance in the range of $220 million to $235 million.

Montreal-based SNC cited, among other things, a number of money-losing legacy contracts and a $75-million charge related to a restructuring of its European operations.

This revised outlook took into account expected proceeds from the previously announced sale of 66 per cent of SNC’s minority interest in the Astoria II power plant in New York City.

Analysts on average had been expecting full-year net income of $226.83-million, according to Thomson Reuters.

On the Toronto Stock Exchange, SNC shares were down $1.74, or 3.94 per cent, at $42.39.

“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 in announcing the adjusted guidance.

“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.”

SNC-Lavalin said it had recorded unfavourable cost “reforecasts” in the third quarter on certain unprofitable fixed price contracts in North Africa and in the hospital and road sectors.

However, the company says it believes the changes, which relate mostly to projects already in a loss position, are “one-time events not expected to further affect future profitability.”

In addition, the company expects its outlook to be impacted by further softness in commodity markets.

SNC-Lavalin, which will announce its third-quarter results Nov. 1, has been reducing its investments in infrastructure assets and recently announced the possible disposal of a minority interest in AltaLink, which owns more than half of Alberta’s electricity grid.

Such a sale would relieve SNC-Lavalin of some of its obligations to fund AltaLink’s expansion, which industry observers believe could be in the range of $600 million to $1 billion over the next three years.

Earlier this month, the Caisse de depot confirmed it was interested in acquiring a minority position AltaLink.

© 2013 The Canadian Press