SNC-Lavalin reports Q3 profit up compared with a year ago

MONTREAL — SNC-Lavalin Inc. reported increased profits in its latest quarter despite feeling the negative effects of currency fluctuations and cost overruns from its fixed-price projects.

“Recent performance highlights our ability to capture market share in our core geographies, which continue to demonstrate resilient growth,” Ian Edwards, chief executive officer of SNC, said in a statement on the company’s third-quarter results on Friday.

Under his stewardship, SNC-Lavalin has shifted its focus to engineering services and away from lump-sum turnkey projects, fixed-price contracts under which companies have to eat any cost overruns.

The backlog in the turnkey projects decreased by 19.9 per cent during the quarter and totalled $663.9 million, a 42.7 per cent decrease from the same period a year prior.

In a conference call to discuss the Montreal-based company’s latest results, Edwards said it is having “close conversations” with its customers to recoup the cash owed for the completed work.

Edwards said that hyperinflation, labour shortages, a safety inspectors’ strike in Ontario and supply chain issues have led to cost overruns.

He said the company’s main focus will be on performance improvements to ensure targets are met in 2023.

SNC said progress on all three of its infrastructure projects remained strong in the quarter and that its light-rail transit projects in both Toronto and Ottawa will be largely complete by end of the year.

“We have significant opportunities in front of us, leveraging our engineering services capabilities to support the development of new infrastructure projects,” said Edwards.

SNC’s engineering services backlog grew 20 per cent to $4.6 billion this quarter, which could help to sustain momentum into the fourth quarter, said National Bank analyst Maxim Sytchev.

The strength of SNC’s engineering services was driven by the company’s core markets in the U.S.. the U.K., and Canada.

“Our engineering services segment achieved a second consecutive quarter of record high backlog, driven by continued growth in the United States,” said Edwards.

The company raised its revenue growth outlook for the engineering services division for the year to a range of between 5 per cent and 7 per cent, up from a previous band between 4 per cent and 6 per cent.

Edwards said that the company will remain resilient due to sustainable infrastructure demand from the public sector, despite challenging global economic circumstances.

“As countries continue to make commitments to net zero, we are seeing that there is a positive catalyst for nuclear as a low-carbon way to use electricity,” said Edwards.

He said that in addition to SNC’s core markets, the firm also saw significant demand from the Middle East for sustainable building development projects to support population growth.

Results were mixed compared with analyst forecasts, said Sabahat Khan of RBC Dominion Securities in a note to clients. Khan noted that the infrastructure segment’s loss was larger than RBC had expected, though the services side, which has been the focus for the company in recent years, was in line with projections.

The engineering firm said its net income amounted to $44.7 million or $0.25 per diluted share for the quarter ended Sept. 30.

The results compare with a net income of $18.6 million or 11 cents per diluted share in the third quarter of 2021.

Net cash flow from operations in the quarter amounted to -$159 million compared to -$65 million in the quarter of last year.

Revenue for this quarter totalled $1.89 billion, up from $1.81 billion in the same quarter last year.

On an adjusted basis, SNC Lavalin said it earned 30 cents per share in its latest quarter compared with an adjusted loss of 23 cents per share in the same quarter last year.

Analysts on average had expected adjusted earnings of 33 cents per share and $1.78 billion in revenue, according to estimates compiled by financial markets data firm Refinitiv.

This report by The Canadian Press was first published Nov. 4, 2022.