News

SNC-Lavalin to quickly cut 4,000 jobs, reduces 2014 profit expectations

MONTREAL – SNC-Lavalin will move quickly to implement a major reduction in the company’s global workforce, with about a quarter of the planned 4,000 layoffs coming in Canada.

Most of the cuts, about nine per cent of SNC’s workforce, will be completed by year-end before wrapping up in 18 months, CEO Robert Card said in a conference call Thursday.

The Montreal-based engineering and construction company (TSX:SNC) says the job cuts — which will significantly reduce the company’s profit this year but save money over the longer term — are part of its efforts to get out of underperforming business segments.

“Our goal is to become a strong and successful Quebec and Canadian national champion,” he said, referring the company’s goal of nearly doubling annual revenues.

“The jobs we are talking about here are not in the right place and the right activities for that future company.”

About three-quarters of the downsizing will be directed at SNC’s activities outside of Canada, Card said.

“If you go watch the Bank of Canada announcements and their assessment of the world you can kind of plot out where it might be impactful for us but we aren’t prepared yet to pin down exact locations,” he told analysts.

In Canada, the cuts will mostly be centred on its operations in Quebec, Ontario, Alberta and Vancouver where it has the bulk of its nearly 17,000 Canadian employees. They are in addition to some IT job cuts in Montreal that were announced internally in September.

Card said SNC-Lavalin won’t be leaving any countries or getting out of any type of work. Although the mining sector has been hit hard by the global slowdown, Card said the restructuring doesn’t target this area, which he said SNC-Lavalin is committed to grow to become a top global player.

“This is all readjustments and there’s some downsizing obviously but we’re not exiting anything,” he said.

Benoit Poirier of Desjardins Capital Markets said the restructuring is necessary for SNC to align its workforce with the weak operating environment.

The restructuring is expected to cost $300 million, including $200 million in cash, and generate $100 million in ongoing savings.

SNC-Lavalin is one of the world’s leading engineering and construction groups, with offices in more than 50 countries and about 45,000 employees.

During the quarter, SNC-Lavalin completed the acquisition of U.K.-based oil and gas services company Kentz Corp — a $2.1-billion deal announced in June.

Kentz was the first big acquisition for Card, who was hired after the engineering firm disclosed financial irregularities two years ago that led to the departures of several top executives.

The downsizing was announced with SNC’s third-quarter financial results, which showed an overall profit due to investments in major infrastructure businesses and a reduced loss from engineering and construction activities.

The company earned $69 million or 45 cents for the three months ended Sept. 30 compared with a loss of $72.5 million or 48 cents per share in the third quarter of 2013. Revenue totalled $2 billion, up from $1.95 billion a year ago.

Its revenue backlog totalled $12.5 billion, a 51 per cent increase from the end of 2013.

Still, the company is lowering its guidance for its 2014 earnings per share.

Including the Kentz transaction and the job cuts announced Thursday, SNC-Lavalin expects to earn between 40 and 55 cents per share. If those aren’t included, the revised guidance would be a range of between $2.15 and $2.40 per share. The estimates did not include a potential gain from the sale of its investment in AltaLink, an Alberta utility.

SNC’s previous range guidance range was earnings per share of between $2.80 and $3.05 per share.

On the Toronto Stock Exchange, SNC’s shares hit a 52-week low of $42.20 in Thursday trading, eventually closing down $3.73 or just over eight per cent at $42.47 in heavy volume.

Analysts said they were disappointed with both the third-quarter results and the softer outlook.

Sara O’Brien of RBC Capital Markets said more important than the $300 million in charges to be taken over the next 18 months is the extra time required to shed the impact of money-losing contracts and produce “clean” results in its core engineering and construction business.

Follow @RossMarowits on Twitter