Aecon Group Inc. saw its stock value nosedive Thursday after quarterly earnings showed legacy construction projects continue to drag down earnings, despite a swing to profit.
The share price of the construction contractor fell by $2.01 — 16 per cent — to close at $10.44 on the Toronto Stock Exchange.
Aecon reported a second-quarter operating loss of $81 million stemming from two of four fixed-price legacy projects. RBC Dominion Securities analyst Sabahat Khan identified the likely culprits as the Gordie Howe bridge project and Toronto’s Finch light-rail transit build.
The losses owed to factors ranging from supply chain snarls to inflation, third-party delays and “unforeseeable site conditions,” according to Aecon.
“While management reiterated the strength of the demand environment and its constructive outlook, ongoing challenges at legacy projects likely limit earnings visibility for the next several quarters,” analyst Chris Murray of ATB Capital Markets said in a note to investors.
The four projects, which make up 10 per cent of Aecon’s backlog, will likely wrap up between late 2023 and 2025, the Toronto-based company said.
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Despite those financial drains, the outfit’s net income for the quarter ended June 30 emerged in the black, buoyed by the divestiture of a road-building business.
Aecon reported net income of $28.2 million in its second quarter, compared to a net loss of $6.4 million in the same period last year — and a loss of $9.4 million in the first quarter of 2023.
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Helping overall earnings was the sale of its Ontario road-building segment for about $38 million and of two buildings for roughly $32 million, the company said.
Aecon also boosted its backlog by 15 per cent with a $615-million deal linked to the Deerfoot Trail segment of Calgary’s Highway 2 and a $1-billion share of a contract to refurbish four Candu nuclear reactors at Ontario’s Bruce power plant.
“With significant new contract awards in the second quarter, backlog of $6.9 billion and recurring revenue programs continuing to see robust demand, Aecon is well-positioned to achieve further revenue growth over the next few years,” CEO Jean-Louis Servranckx said in a statement.
Some analysts agreed, with Laurentian Bank Securities’ Jonathan Lamers pointing to a “bright future” with bigger earning power “as legacy project losses roll-off.”
More recent contracts not reflected in the backlog include projects tied to a commuter rail expansion in southern Ontario by provincial agency Metrolinx and to the Scarborough subway extension in Toronto.
In its second quarter, Aecon posted revenue of $1.17 billion compared with $1.12 billion a year earlier.
Diluted earnings reached 38 cents per share, up from a 10 cent per share loss in the second quarter of 2022. But earnings before interest and taxation (EBIT) came in at a loss of about $24 million, far below analyst expectations of $21 million in EBIT, according to financial markets data firm Refinitiv.
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