SNC-Lavalin to scale back operations in 15 countries after being 'disappointed' by earnings

Canadian engineering firm SNC-Lavalin Group Inc. said on Thursday it was scaling back operations in 15 countries as it reported a surprise loss in its main engineering and construction unit, sending its shares down 6 per cent.

"We will be focusing on our core geographies and are removing unprofitable revenues across 15 countries where we have sub-scale operations," CEO Neil Bruce said in a statement. The company added that the countries it is exiting together made up about $85 million worth of revenue for the company.

Moving forward, the company plans to focus on six geographic areas:

• Canada.
• The U.S.
• The U.K.
• The Middle East.
• Hong Kong.
• Australia.

The company also said its previously announced deal to sell a 10.01 per cent stake in an Ontario's highway 407 for $3.25 billion may be blocked by the operator's shareholder.

The company has been informed that the shareholder may use its right of first refusal, SNC said.

If the deal is blocked, SNC will have to pay a break up fee of 2.5 per cent of the deal value and at least one analyst cautioned that this could push up the company's costs for the year.

This could be an additional headache for Montreal-based SNC that is already dealing with a host of problems that include trade challenges in Saudi Arabia and corruption charges back home.

It reported negative cash flow for the quarter and is in midst of restructuring its operations to simplify it and cut costs by just over $100 million for the rest of 2019.

However, SNC maintained its target of full-year 2019 profit and CEO Bruce said "we remain confident that we can deliver our 2019 outlook, despite being disappointed with our first quarter performance."

Raymond James analysts in note titled "Yikes!" seemed skeptical of the company's reaffirmation of full-year guidance, saying that the implied big second half turnaround seemed "unrealistic."

"Considering the many cost savings initiatives of past years, we find it somewhat surprising these is still that much fat to trim out of the business," Frederic Bastien added, regarding the cost-reduction program.

For the first quarter, the company reported an adjusted loss of 8 Canadian cents per share in its E&C unit for the quarter, compared to analysts' average estimates of a profit of 33 Canadian cents, according to IBES data from Refinitiv.

Adjusted net income attributable to shareholders fell to $36.9 million in the first quarter ended March 31, from $136 million, a year earlier.