December 14, 2007 / 12:55 PM / in 10 years

Transat shares fall on earnings miss, ABCP hit

TORONTO (Reuters) - Shares in holiday travel company Transat A.T. Inc TRZb.TO plunged as much as 15 percent on Friday after the company reported a drop in fourth-quarter profit, due in part to an C$11.2 million writedown on asset-backed commercial paper securities.

Transat shares were down C$3.91, or 9.9 percent, at C$35.73 on the Toronto Stock Exchange on Friday afternoon.

The Montreal-based company said it earned C$7.7 million ($7.6 million), or 23 Canadian cents a share, in the quarter, down from C$13.6 million, or 39 Canadian cents a share, in the same quarter last year.

Analysts had expected earnings of 45 Canadian cents a share, according to Reuters estimates.

Transat, parent of airline Air Transat, said on Friday it wrote down 7 percent of its ABCP investments, or C$11.2 million, but that there were “uncertainties” as to what the final cost would be.

“The resolution of these uncertainties could be such that the ultimate fair value of these investments may vary significantly from management’s current best estimate and the magnitude of any such difference could be material to our financial results.”

Transat announced in August it had C$154.5 million invested in 10 different asset-backed commercial paper trusts.

Canada’s ABCP market has been frozen since the credit crunch began in August.

However, an announcement is expected on Friday about restructuring the short-term paper into long-term debt, which could help clarify how big losses could be.

Transat said high fuel costs and increased competition on its Canada-Britain routes also hurt results.

“They said they lost almost $20 million pretax (on the Canada-UK route), which is a stunning amount of money,” said Doug Cooper, an analyst at Paradigm Capital.

The company said customers were waiting later than ever to book trips, making it difficult to forecast earnings for the winter season.

Transat also said it wrote down C$3.9 million of goodwill related to its investment in Travel Superstore Inc., an Ontario-based travel agency. And it took a C$13.6 million gain for hedges on fuel under new accounting standards.

Excluding the impact of noncash, nonoperating items, Transat said net income would have been C$10.4 million, or 31 Canadian cents a share.

Revenue during the quarter rose 9.8 percent to C$680.4 million.

($1=$1.02 Canadian)

Reporting by John McCrank; Editing by Peter Galloway

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