Snc-lavalin swings to full-year profit after ‘challenging’ 2019
Snc-lavalin Group Inc., the Quebec engineering firm tainted by overseas corruption, reported a fourth-quarter loss Friday due to a fraud fine and restructuring costs, but swung into profit for the year on revenue that beat expectations.
Montreal-based Snc-lavalin said it made a loss of $292.9 million during the final three months of 2019 after it paid $257.3 million of a $280-million fine for fraud in Libya by its construction division between 2001 and 2011. It also incurred a $99.6-million charge related to shutting the Valerus oil and gas facility in Houston.
The quarterly loss compared with a $1.6-billion loss in the same period of the previous year. The $328-million profit for 2019 improved on the $1.32-billion loss in 2018.
Ian L. Edwards, president and CEO of Snc-lavalin, called the year “challenging” while noting an executive shakeup and a new strategic direction away from lump sum turnkey projects to expand engineering services had driven revenue.
“We were tested as a company, and went through some very difficult times, but I am very proud to say that we took decisive action and are stronger for it,” Edwards said in a statement. “The strategy is delivering.”
The company also said it disbanded a special committee that was established by the board in December 2018 to explore a range of alternatives to protect and enhance its value.
The quarter’s consolidated revenue of $2.44 billion beat a consensus estimate by analysts of $2.31 billion although it was less than the $2.56 billion a year earlier. Consolidated earnings before interest, tax, depreciation and amortization jumped to $198.3 million from a loss of $127.8 million in the 2018 period. The consensus was for $182 million.
“Balance sheet and cash flow were strong (in a seasonally flattering quarter, but still),” National Bank analyst Maxim Sytchev said Friday in a note. “It’s likely too early to pronounce a win on this one but at least we are moving in the right direction.”
Sytchev is looking for Snc-lavalin to generate positive free cash flow for a year as it maintains strong earnings margins in all divisions except resources, where losses are expected to dwindle as legacy projects tail off.
The company’s outlook is for gross revenue from SNCL Engineering Services, excluding capital, to expand by a low single-digit percentage, while that unit’s contribution to gross revenue will increase to between 10 per cent and 12 per cent.
National Bank rated the shares “outperform,” noting they’ve been trading at half the price-to-earnings ratio of their peers in the engineering consulting industry.
“The upside looks enticing (even though the ride will have some bumps along the road),” Sytchev said.
The stock jumped almost 11 per cent to close at $31.20, bucking the wider market’s continued downturn over the coronavirus.