October 16, 2013 / 2:30 PM / 5 years ago

SNC-Lavalin shares sink on profit warning

TORONTO (Reuters) - Shares of Canadian construction and engineering company SNC-Lavalin Group Inc (SNC.TO) tumbled as much as 7 percent in early trade on Wednesday, after the company slashed its profit forecast, raising questions about its recovery plan.

Pedestrians walk past a sign for the head office of SNC Lavalin in downtown Montreal March 26, 2012. REUTERS/Christinne Muschi

SNC, which has struggled in the wake of a far-reaching corruption and ethics scandal that has toppled senior executives, primarily blamed project cost overruns on contracts in North Africa and in its hospital and roads division.

A C$75 million ($72.33 million) charge for a European reorganization and weak mining demand also factored in the lower forecast, it said.

The Montreal-based company said it now sees 2013 profit at C$10 million to C$50 million, down from an earlier estimate of C$220 million to C$235 million.

SNC’s stock was down 5 percent to C$41.94 on the Toronto Stock Exchange on Wednesday morning.

“While we recognize that some of these cost re-forecasts could be one-time in nature, we expect the recurrence of write-offs at SNC could be troubling to credit rating agencies and lenders,” RBC Capital Markets analyst Sara O’Brien said in a note.

“While SNC doesn’t currently utilize much credit, given that it has a portfolio of large fixed bid construction contracts, it needs access to credit lines to provide letters of guarantee.”

At the end of 2012, SNC had C$2 billion in letters of guarantee issued, the analyst wrote.

($1 = $1.0369 Canadian)

Reporting By Susan Taylor; Editing by Chris Reese

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