SNC-Lavalin may sell stake in Highway 407 toll road quicker than planned
MONTREAL - Engineering consulting and construction firm SNC-Lavalin says a decision on selling its investment in Ontario's Highway 407 toll road is proceeding quicker than planned.
"We still expect that action may occur sooner rather than later, within our original midterm of one-to-three-year projection," CEO Robert Card said Friday during a conference call to discuss its second-quarter results.
He said the Montreal-based company isn't pressed to sell but sees the market as "largely favourable".
The evaluation on the sale comes as the company anticipates a stronger second half to the year in its core engineering and construction business as it continues to reduce the number of troubled legacy projects.
These include the $1.3-billion McGill University superhospital, which is on track to be completed on Sept. 30 if SNC receives about $200 million for additional work.
"We will be turning over the hospital not one second before the money's in the bank," Card told analysts.
Card said Ste-Justine Children's Hospital and highway projects in Western Canada are making progress.
The company reiterated its EPS guidance for the year at $2.80 to $3.05, excluding the gain on the sale of AltaLink, the Alberta utility, and the impact of the planned $2.1 billion acquisition of purchasing of U.K.-based Kentz Corp. Ltd., a global engineering firm that provides services to the oil and gas sector, announced in June.
"Our challenging project situation continues to get better even though it's frustrating...So we're counting on that to be less bad," he said when asked to explain his outlook for the rest of the year.
SNC-Lavalin (TSX:SNC) continued to face challenges in the second quarter, missing expectations despite swinging to a $32.1 million profit on a 12.7-per-cent drop in revenues.
The company said net income attributable to shareholders equalled 21 cents per share for the three months ended June 30, compared to a 25 cents per share or $37.7 million loss a year earlier.
The results included $25.9 million of expenses related to the proposed $2.1-billion acquisition of Kentz Corp. Ltd. Excluding one-time items, adjusted earnings equalled 38 cents per share, well short of the 63 cents per share forecast by analysts.
Revenues were nearly $1.7 billion, down from $1.94 billion in the year-ago period, as higher concessions revenues were more than offset by decreases in its core engineering and construction division.
"While overall market positions are presenting more challenges than we had hoped at the beginning of the year, we remain optimistic about the long-term growth and profitability of SNC-Lavalin and our progress in executing our strategic plan is serving to improve this outlook," Card added.
The engineering and construction group lost $46.9 million in the quarter, an improvement from the $104.7 million loss in the June 2013 quarter.
Infrastructure concession investment profits increased 17.8 per cent to $78.9 million due to higher net income at AltaLink, which is being sold to a division of Berkshire Hathaway, and higher dividends from its stake in Highway 407.
Maxim Sytchev of Dundee Capital Markets said the results shows the impact of challenging projects.
"All-in, not a lot of silver lining in the short-term," the analyst wrote in a report.
Leon Aghazarian of National Bank Financial said the results look disappointing at first blush but the focus should remain on the outlook for 2015.
"We remind investors that the heavy lifting in terms of cost cutting, backlog 'clean-up,' major acquisition and ICI divestiture is well underway and we continue to look towards 2015 for the realization of these benefits," he said in a note.
On the Toronto Stock Exchange, SNC-Lavalin's shares closed at $56.91, down $1.71 or nearly three per cent in Friday trading.
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