An exterior view of SNC Lavalin Group Inc., in Montreal.Christinne Muschi/The Globe and Mail
SNC-Lavalin Group Inc. says a poorer-than-expected performance on two Middle East oil-and-gas projects will hurt its earnings-per-share outlook for 2016 in its core engineering and construction business.
The Montreal-based engineering company said on Thursday it is revising its 2016 outlook for adjusted diluted earnings per share in engineering and construction (E&C) to between $1.30 and $1.60, from its previous forecast of between $1.50 and $1.70.
SNC said it continues to target annualized earnings before interest, taxes, depreciation and amortization (EBITDA) of 7 per cent in 2017.
The company said the outlook on its other business segments "remains largely unchanged with the infrastructure segment trending to be slightly better than expected."
E&C accounts for about 60 per cent of SNC's business.
SNC shares were down $3.65 or 6.6 per cent, at $51.29, in early afternoon trading on the Toronto Stock Exchange on Thursday.
The announcement is likely to fuel concerns over SNC's ability to meet its 7-per-cent margin target, Desjardins Securities analyst Benoit Poirier said in a research note Thursday.
"Over all, we view this announcement negatively, as it will likely impact the Street's confidence in the new management team, which had reported consistently solid results since the appointment of Neil Bruce as CEO in the fall of 2015," he said.
SNC said on Thursday it expects to book a charge in the third quarter related to "unfavorable cost and revenue reforecasts on two oil and gas projects in the Middle East."
It did not specify the nature of the problems or name the two projects.
The fourth quarter – which starts Saturday – should see a return to a "more normal run rate, and discussions are ongoing to attempt to resolve the commercial issues in these contracts," said SNC.
More details will be provided in the third-quarter earnings report and conference call, slated for Nov. 3, the company said.
SNC executives said earlier this year that they were counting on the company's oil and gas business to be a key profit generator for 2016.
The company is active in several countries in the Middle East, including Saudi Arabia, Qatar, the United Arab Emirates and Iraq.
Continuing oil and gas projects include development of infrastructure and processing facilities for a gas field in an unnamed country – valued at about $800-million – and engineering consultancy and support services for Oryx GTL, a joint venture between Qatar Petroleum and South Africa's Sasol, related to a gas-to-liquids facility.