SNC 2015 Forecast Misses Estimates on Construction, Water

SNC-Lavalin Group Inc. forecast profit for this year from its engineering and construction business that falls short of analysts’ projections as the infrastructure and water-and-environment units grapple with a slowdown.

Adjusted profit in 2015 will range from C$1.30 ($1.05) a share to C$1.60, Montreal-based SNC said Thursday in a statement. That compares with the C$2.24 average forecast in a Bloomberg survey of 10 analysts.

“Market conditions will be challenging in 2015,” said Chief Executive Officer Robert Card, who is pressing ahead with a plan to eliminate about 9 percent of the workforce. Card is integrating last year’s C$2.1 billion purchase of Kentz Corp., a move to get into the more profitable oil and gas services just as crude prices were tumbling.

At the same time, Card is contending with the fallout from a scandal over improper payments, under a previous CEO, that led SNC to be charged last month with attempted bribery and fraud related to projects in Libya. SNC will fight the charges “vigorously,” Card told analysts Thursday on a conference call. Employee turnover in Canada or abroad hasn’t been affected by the situation, he said.

“We’d rather have achieved a different outcome, but what happened is the process in Canada,” Card said about the charges. “We’re still going to do our very best to have a different process. That’s my day and night focus.”

Shares Fall

SNC fell 6.6 percent to C$36.97 in Toronto, its lowest closing price since December 2012. The stock has dropped 17 percent this year, compared with a 3.2 percent advance by Canada’s benchmark Standard & Poor’s/TSX Composite Index.

The adjusted profit forecast for 2015 excludes about C$60 million in expenses related to the job-cutting plan and C$65 million in asset amortization, acquisition and integration costs stemming from the Kentz transaction, SNC said.

SNC’s 2015 forecast is “below consensus but the market is already ascribing very little value to the engineering and construction division,” Maxim Sytchev, an analyst at Dundee Securities in Toronto, said in a note to clients.

Citing its “long-term outlook, cash position, backlog and opportunities,” SNC increased its quarterly cash dividend by 4 percent to 25 cents. The dividend will be payable on April 2 to shareholders of record on March 19.

Total per-share earnings this year will probably be C$1.60 to C$1.90, SNC said. The average of analyst estimates compiled by Bloomberg was C$2.92.

Net income in the fourth quarter was C$1.15 billion, or C$7.51 a share, boosted by a gain from the sale of the AltaLink power-transmission unit to Warren Buffett’s Berkshire Hathaway Inc. That transaction closed Dec. 1.

Toll-Road Stake

SNC is planning to conclude the sale of its minority stake in 407 International Inc., the operator of a toll road in the Toronto area, this year, Card said on the call.

While the market “looks attractive” for a sale, “it’s a very challenging process to extract full value” from the asset because of existing agreements with the road’s other owners, he said, declining to be specific.

SNC owns 17 percent of 407 International, compared with 43 percent for Spain’s Ferrovial SA and 40 percent for the Canada Pension Plan Investment Board.

“With investors asking what could be the use of proceeds from potential 407 monetization, we argue for a shareholder friendly gesture -- dividend, buyback, with only a fraction going towards mergers and acquisitions,” Dundee’s Sytchev said.

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