(Updates with additional details on results, outlook, analyst
By Solarina Ho
TORONTO Aug 8 SNC-Lavalin Group Inc,
Canada's largest engineering and construction firm, on Friday
reported a return to profit in the second quarter that fell
sharply below analysts' expectations as problematic, old
projects started by previous management continued to hurt the
The Montreal-based company has been trying to move past a
far-reaching scandal involving allegations of fraud and bribery,
and to deal with a remaining backlog of more than C$600 million
in challenging projects.
Shares, which had climbed about 20 percent since the start
of the year, fell 3.1 percent to C$56.83 on the Toronto Stock
The company announced during the quarter that it will buy
resource-sector engineering group Kentz Corp for $2 billion to
help accelerate its turnaround plan and expand its high-growth
and high-margin operations in the oil and gas industry.
Net income was C$32.1 million, or 21 Canadian cents a share,
compared with a loss of C$37.5 million, or 25 Canadian cents a
share, a year earlier when it took sizable charges related to
The firm said overall revenue was C$1.7 billion, lower than
the C$1.9 billion a year ago.
Analysts had been expecting earnings of 63 Canadian cents a
share and revenue of C$1.8 billion, according to Thomson Reuters
Net loss from the company's Engineering & Construction, and
Operations & Maintenance units narrowed to C$47.9 million during
the quarter. Last year, it reported a net loss of C$104.7
million for those units.
Profitability in the Oil & Gas, and Infrastructure &
Construction sub-segments continued to be dragged down by old
"All-in, not a lot of silver lining in the short term; that
being said, the problematic projects ... are becoming a smaller
portion of company's business by the day," said Dundee
Securities analyst Maxim Sytchev. He noted that SNC has cut the
backlog of old projects by 17 percent since the first quarter.
"One step forward, two steps back is what we are still
experiencing with the core business," Sytchev said.
The segment was also hit by an unfavorable C$20.4 million
foreign exchange hedge, as well as costs related to the Kentz
Net income from its infrastructure concession investments
business, which includes managing the 407 express toll highway
that parallels the northern boundary of Toronto, Canada's
largest city, increased to C$78.9 million, higher than the C$67
million it reported last year.
SNC, which had indicated that it was looking to sell the 407
asset sooner than later, said a higher net income from AltaLink
and a higher dividend from the 407, helped.
It is selling the AltaLink asset to a unit of Berkshire
Hathaway in a deal that is expected to close at the end
of the year.
Despite the challenges, SNC maintained its 2014 earnings per
share guidance of between C$2.80 and C$3.05, excluding any
impact from asset sales.
(Editing by Jeffrey Benkoe and Jonathan Oatis)