SNC Forecast Trails Estimates Amid Weaker Metal MarketsFrederic Tomesco
SNC-Lavalin Group Inc. slid the most in a year after Canada’s biggest engineering company forecast lower profit for 2013 than analysts estimated as Chief Executive Officer Robert Card grapples with weakening metals markets.
Net income this year will probably climb 10 percent to 15 percent as softer commodity prices and challenges in the hydrocarbon and chemicals business erode gains from other units, SNC said in a statement today. The shares plunged 6.2 percent, their biggest single-day decline since February 2012.
The infrastructure and concessions unit, which Card created as the company reviews some of its projects for a possible sale, will fuel yearly net income along with the power division, SNC said. The CEO, who took the post in October, is reshaping the Montreal-based company after a corruption scandal that led to a fraud investigation and investor lawsuits.
“The guidance for 2013 is kind of weak,” Trevor Johnson, an analyst at National Bank Financial, said in a telephone interview from in Toronto. Analysts on average had predicted 2013 earnings of C$2.84 a share, a 39 percent increase.
Fourth-quarter earnings of 63 cents a share trailed the 92-cent average estimate of analysts surveyed by Bloomberg. Net income attributable to SNC shareholders rose to C$94.6 million ($92.2 million), from C$76 million, or 50 cents, a year earlier, the company said.
Profit was hampered by “cost reforecasts,” including C$49 million for an unidentified power project, and C$27.6 million for a hydrocarbons and chemicals contract, SNC said in a regulatory filing. Both are outside Canada, the company said.
SNC has “a number of challenged projects that are significant drags on the bottom line,” Card said today on a conference call. Most of them “are legacies from the 2010 and 2011 timeframe,” he said, without being more specific. SNC has adopted a new bidding process to prevent those problems from reoccurring, he said.
The hydrocarbons project, located in Russia, will be completed this year, while the unidentified power contract “ceases to be a risk” in 2013, Card said without elaborating.
The expenses led to a 34 percent drop, to C$24.2 million from C$36.5 million, in fourth-quarter earnings excluding the infrastructure and concessions investments unit. Net income in that unit jumped 78 percent to C$70.4 million due to increased dividends from Highway 407 in Ontario.
“It’s a large miss” on total profit, said Johnson, who rates the shares outperform. “The cost reforecasts on the two projects outside of Canada are really what wiped out the engineering and construction earnings in the quarter.”
SNC fell to C$43.01 at the close in Toronto, its biggest percentage drop since Feb. 28, 2012 -- the day it announced an internal investigation into inaccurate documentation of some payments by its construction unit. That probe led to the departure a month later of then-CEO Pierre Duhaime, who was later arrested by Quebec police and charged with fraud.
Fourth-quarter sales rose 14 percent to C$2.42 billion, SNC said. The backlog of future contracts was C$10.1 billion as of Dec. 31, little changed from a year earlier.
Card, who took over Oct. 1, has appointed new senior managers and is considering the sale of infrastructure assets from a toll road to power lines after grouping them in a new unit. The company expects to announce the main elements of a plan based on the review of those assets when it reports first-quarter earnings in May, Card said today.
“While 2012 was a challenging year for SNC-Lavalin and its employees, our revenue increased and our backlog remained solid,” Card said in the statement. “The last months have been dedicated to putting the house in order and reinforcing our commitment to excellence, quality, safety and ethics.”
SNC is facing investigations into allegations of corruption by authorities including the Royal Canadian Mounted Police and the World Bank in connection with projects in Canada and elsewhere.
Executives and directors “have been required to devote significant time and resources to these investigations and ongoing related matters which have distracted and may continue to distract from the conduct of the company’s daily business,” SNC said in its filing today.
SNC said Feb. 22 that it hired Andreas Pohlmann as chief compliance officer, effective March 1. Pohlmann, a former executive at Munich-based Siemens AG, oversaw the creation and implementation of that company’s compliance and corporate governance policy.
SNC “will continue to cooperate with authorities and other stakeholders to put this issue behind us as rapidly as feasible,” Card said today.
The company is “getting a lot better handle” on ethics, Card said. The CEO said he’s not expecting “big surprises” in matters of compliance.
SNC is putting in “a huge effort” in trying to complete its own investigation into allegations of impropriety “so that I can tell you: ‘We think we’re done with that,’” he said. “I can’t tell you that until we’re really done. What was happening last year is continuing this year, only far better organized and controlled, and with more clear objectives.”
Card said those efforts “will likely mean the continuation of some extra costs and management distraction for the balance of the year.” He didn’t provide figures.
Also today, the company said it raised its cash dividend by 4.5 percent to 23 cents a share. It will be payable on April 5 to shareholders of record as of March 22.