SNC-Lavalin reports $94.6 million in net income for fourth quarter

MONTREAL – SNC-Lavalin (TSX:SNC) reported Friday an increase in its fourth-quarter profits compared with a year ago as it navigated accusations of fraud against its former chief executive.

However, the results and the company’s guidance for earning growth for 2013 of between 10 and 15 per cent fell short of market expectations, and resulted in investors selling off their shares.

SNC lost $2.84 or about six per cent on Friday to close at $43.01 on the Toronto Stock Exchange.

Chief executive and president Robert Card conceded the guidance was not what he would like to see.

“We’re trying to give you the best realistic look that we can,” Card told a conference call with financial analysts.

He said it will likely take another couple of quarters before he has a better idea about how the company is doing with several problem projects.

“I’ve taken my best shot of figuring out what we can deliver, but as I’ve mentioned, there’s both large potential and large other things that can happen in there,” Card said.

“It is frankly very disappointing to me also. I’m not at all proud of it and I’m anxious to make myself eat crow in a positive sense on it.”

CIBC analyst Paul Lechem said the guidance amounted to expectations for a 2013 profit of around $2.25 to $2.35 per share, well short of the consensus expectation for $2.84.

“We put this down to a few issues,” Lechem wrote in a note to clients, that attributed some of the shortfall to management sandbagging.

He also listed competition, problem contracts and new contracts that are front-end loaded in terms of costs as reasons.

SNC said it earned $94.6 million or 63 cents per share in the fourth quarter with $2.42 billion in revenue, as its investment in Ontario’s Highway 407 paid higher dividends.

That was up from a profit of $76.13 million or 50 cents per share in the fourth quarter of 2011 when SNC’s revenue was $2.12 billion.

The engineering and construction firm also increased its quarterly dividend by a penny to 23 cents per share.

“The last months have been dedicated to putting the house in order and reinforcing our commitment to excellence, quality, safety and ethics,” Card said.

“As previously announced, we continue to actively review and develop the strategic business plan of the company, and we expect to announce the main elements of the plan at the time of our first quarter financial results and annual general meeting.”

SNC has scheduled its annual meeting of shareholders in Montreal on May 2.

Former CEO Pierre Duhaime and another former SNC top executive, Riadh Ben Aissa, are facing fraud charges stemming from a contract involving the building of the multibillion-dollar McGill University Health Centre in Montreal.

Duhaime was relieved of his duties in March 2012 after an independent review showed he signed off on $56 million in payments to undisclosed agents. The company called his abrupt departure a “retirement.’

Duhaime was arrested last November, during the quarter covered by the latest financial report, by Quebec’s anti-corruption squad.

Despite the increase in earnings, the results fell short of analysts’ expectations which were for a profit of 92 cents per share of net income with $2.17 billion of revenue, according to figures compiled by Thomson Reuters.

Driving SNC’s improvement for the quarter was its investments in infrastructure and concessions, including higher dividends from Highway 407 and improved profits from AltaLink, offset in part by lower earnings from Shariket Kahraba Hadjret En Nouss S.p.A., a power plant in Algeria.

The division earned $70.4 million in the latest quarter, a 78 per cent increase from $39.5 million in the fourth quarter of 2011.

SNC’s profit excluding the infrastructure and concession investments fell to $24.25 million from $36.5 million a year earlier.

For the full year, SNC reported a profit of $309.5 million or $2.04 per share on $8.09 billion in revenue. That compared with a profit of $387.3 million or $2.49 per share on $7.21 billion in revenue in 2011.

The company also said that a review of its financial reporting has found that problems in the system identified last year have been eliminated.

A former executive of German industrial conglomerate Siemens was hired recently to be SNC’s chief compliance officer, responsible for guiding the company on ethics and matters of corporate governance.