Canam may take break from prestige projects after loss
Steelmaker’s ‘pride cannot be deposited at the bank,’ CEO says
Canam Group Inc., the Quebec steelmaker that has contributed to some of the most prominent recent bridge and stadium constructions in North America, says it’s looking to move away from complex prestige projects after cost overruns on an unnamed contract caused a net loss in the second quarter.
Canam announced mid-July that it would take a $32-million after-tax hit because of revised cost estimates to a significant project slated to wind down in the third quarter.
The issue created a domino effect as staff had to be pulled from other projects to resolve the problem, resulting in a $35.3-million EBITDA loss compared with a $26.8-million gain in the same quarter last year.
“Although we are understandably proud of the manufacturing and technical expertise that allows Canam to participate in large, complex, unique and challenging structural projects, the financial results of these activities must justify the substantial human, physical and capital investments that they require,” CEO Marc Dutil said in a conference call Thursday morning after the release of the financial results for the three months ended July 2.
The identity of the troubled project was not disclosed at the request of the client, though Laurentian Bank Securities analyst Mona Nazir believes it is a multi-purpose stadium, as there have been challenges both with New York’s Arthur Ashe Stadium and with the Atlanta Falcons’ Mercedes-Benz Stadium.
According to the latest status report issued by the Georgia World Congress Center Authority, the progress of the Atlanta stadium is being paced by the construction of the fixed roof structural steel, part of Canam’s contract, which is worth more than $200 million.
Dutil didn’t disclose the reason for the extra cost, saying it was unrelated to execution, but rather a “clash of cultures” resulting in problems integrating new staff.
He says the silver lining in the latest report is the increase in backlog, which is up 7.7 per cent, to $1.248 million on July 2016, from $1.058 million June 2015.
Every year the Saint-Georges, Que.-based company takes part in designing and fabricating steel components for about 10,000 building, heavy steel and bridge projects.
Although the company has been involved in such projects as the New Yankee Stadium, the Smithsonian Air and Space Museum and, currently, Montreal’s new Champlain Bridge, Dutil says management is now taking a hard look at whether it will take on such complex endeavours in the future.
In the conference call, Dutil noted Canam’s work on the BC Place Stadium’s retractable roof in 2009, which resulted in a $25-million loss and a multi-million-dollar lawsuit.
“This is painful enough — you don’t want to do it twice,” he said. “The merits of building something spectacular and the pride of having done it cannot be deposited at the bank and cannot be paid out as a dividend.”
Canam’s stock took a beating on Thursday, falling 9.68 per cent to close at $9.33 in Toronto. The stock hit a more than 20-month low last month after Canam announced the extra $32 million costs on July 14.
Raymond James analyst Frédéric Bastien lowered his price target from $19 per share to $15 per share; he does not believe the company is seeing a repeat of the BC Place fiasco.
“Construction stocks hit a wall every now and then, and that is when they are most attractive,” he said in an email.
While Nazir maintains a Buy rating on the stock, she says investor confidence was hit by financial results well below expectations, even after the extra costs on the problem project were announced three weeks ago.
Dutil said that although there are no layoffs to be announced, job reductions in the 4,000-person workforce are not off the table.