June 2, 2010 / 11:18 AM / 7 years ago

UPDATE 2-ATS profit drops, shares tumble on weak outlook

* Earnings fall 85 pct on inventory write-down

* Shares down 8 percent

* Concerns about Photowatt split-off, tepid outlook

(Recasts with stock move, analyst comment)

VANCOUVER, June 2 (Reuters) - ATS Automation Tooling Systems Inc (ATA.TO) on Wednesday said its profit plunged and offered a tepid outlook, sending its shares down 8 percent.

ATS, which makes factory automation systems and solar energy equipment, attributed much of the earnings decline to a write-off of inventory at its Photowatt Technologies unit. Analysts worried that the sluggish performance at the solar unit would delay its planned spin-off.

“Operating at break-even is not a great shape for a business if one wants to divest of it. The concern is that that will take longer than what the investors would like to see,” said Cormark Securities analyst MacMurray Whale.

The separation of Photowatt into a stand-alone business, which may be sold, was still in its early stages and the timing will hinge on capital market conditions, interested parties and the type of deal, ATS Chief Executive Anthony Caputo said.

“But our goal is to move it forward as quickly as possible,” Caputo said on a conference call.

He blamed Photowatt’s poor earnings on its high costs at a time when average selling prices for solar equipment are falling globally.

Earlier ATS reported an 85 percent slide in net income to C$2.1 million ($2.0 million), or 3 Canadian cents per share, for the three months to the end of March.

That compared with C$13.5 million, or 15 Canadian cents a share, in the same period a year earlier.

The Photowatt unit, which operates in France and is in the process of setting up shop in the Canadian province of Ontario, wrote down C$40.3 million of inventory in the quarter.

Without the write-down, ATS’s earnings were in line with the 7 Canadian cents a share that analysts had been expecting.

Revenue fell 31 percent to C$138.8 million.

Looking ahead, Caputo said he expected a recovery in ATS’s markets to “continue to lag the general economic recovery.”

This is because its products tend to be of significant capital cost for its customers and are often related to new product launches.

“So we were somewhat insulated going in (to the recession) because of the duration of our projects, and I believe we’re going to lag coming out for the same reason,” he said.

ATS’s stock was down 56 Canadian cents, or 8.2 percent, at C$6.25 on the Toronto Stock Exchange on Wednesday afternoon.

$1=1.054 Canadian Dollar Reporting by Nicole Mordant and Abhiram Nandakumar in Bangalore; Editing by Frank McGurty

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