August 4, 2016 / 1:27 PM / a year ago

SNC-Lavalin posts better-than-expected profit, stock up

A Royal Canadian Mounted Police (RCMP) officer walks past the headquarters of SNC Lavalin in Montreal April 13, 2012. REUTERS/Christinne Muschi

MONTREAL (Reuters) - Canada’s SNC-Lavalin Group Inc (SNC.TO) reported a better-than-expected quarterly profit on Thursday, helped by strength in its core engineering and construction business and lower costs.

Shares in the Montreal-based company closed up more than 3 percent at C$57.62 after the results and comments from executives.

Chief Executive Neil Bruce said on a conference call that SNC had no current plans to sell its stake in Ontario’s 407 toll highway.

In June, Reuters reported SNC was facing internal pressure from shareholder Canadian hedge fund West Face Capital to sell the stake. SNC owns about 17 percent of the 407, which many investors see as a non-core asset.

“We don’t have a process, or plans at this stage to have a process to monetize the 407,” he said on the call. “We don’t see any potential M&A (merger and acquisition) activity in the future necessarily being linked to the sale of 407.”

SNC is undertaking a sweeping cost-cutting program expected to help lower 2016 expenses by about C$100 million ($77 million) and boost margins in its core business as clients cut spending due to low commodity prices.

Chief Financial Officer Sylvain Girard said that he expected SNC’s net cash flow generated from operating activities, now at negative C$322 million, would either break even, or become positive by the end of 2016.

Earlier in the day, the company said total selling, general and administrative expenses decreased by 10.1 pct in the second quarter, from a year earlier.

SNC’s adjusted earnings for the quarter was 48 Canadian cents per share, above the average analyst estimate of 36 Canadian cents, according to Thomson Reuters I/B/E/S.

Net income attributable to the company’s shareholders jumped more than three-fold to C$88.5 million, or 59 Canadian cents per share, in the quarter ended June 30.

The engineering and construction business accounted for nearly 60 percent of the company’s net income.

SNC reiterated its target of delivering an annualized adjusted engineering and construction EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 7 percent in 2017.

Revenue fell 6.6 percent to C$2.11 billion.

With additional reporting by Amrutha Gayathri and Vishaka George in Bengaluru; Editing by Maju Samuel and Andrew Hay

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