MONTREAL 鈥� AtkinsR茅alis Group Inc.'s nuclear business drove big growth in profits and backlog last quarter, as the engineering firm continued to capitalize on the global energy transition.
The nuclear division's revenue leapt 41 per cent year-over-year to $358 million in the quarter ended June 30, while its order book ballooned 57 per cent to $1.75 billion, helping to push the company's total backlog to a record high.
The performance also brightened the Montreal-based firm's financial forecast for the year. AtkinsR茅alis raised its outlook for year-over-year nuclear organic revenue growth to between 30 and 35 per cent from 15 to 20 per cent. However, it also predicted a slightly slimmer adjusted earnings margin for the segment, citing the "business mix" for 2024.
"Our nuclear business really is going strength to strength. Governments around the world, clients, utilities, they're all beginning to realize that ... a net-zero electrical energy grid 鈥� it has to have a component of nuclear for that baseload power," chief executive Ian Edwards said.
Contracts with Atkins subsidiary Candu Energy have driven short-term backlog growth. The company, which owns the intellectual property rights to the Candu nuclear technology, recently secured new contracts to extend the life of a Romanian nuclear reactor and, last quarter, to refurbish the Qinshan nuclear plant southwest of Shanghai.
Candu Energy is also in talks for life extension work at Ontario's Pickering nuclear power station, Edwards said.
He sees nuclear power, which emits no greenhouse gases, as part of a broader shift to more sustainable energy production that it hopes to seize on across the globe.
"We're in negotiation for other life extensions across the world, because it's a really cheap form of electricity. You just replace the reactor components and give it an extra 30 years of life. So economically, it's almost a no-brainer," Edwards told analysts on a conference call Friday.
Meanwhile, revenue from Atkins' engineering services rose 12 per cent year-over-year to $2.3 billion in the second quarter.
Contract wins in Canada helped boost the overall backlog 24 per cent to a record $15.89 billion. Atkins won a bid to design a new bridge linking Quebec City to the 脦le d'Orl茅ans as part of a $2.9-billion provincial undertaking. It also snagged a contract for the $304-million redevelopment of a B.C. ferry terminal used by passengers travelling between Victoria and the U.S.
South of the border, Atkins won an engineering contract for an interstate highway interchange project in Florida as the company pursues a "land-and-expand" strategy in the U.S.
"It's really about decaying infrastructure that needs replacement," Edwards said.
"The great thing about the U.S. market is that it's very fragmented, a lot of small players, a lot of medium-sized players in the U.S. So lots of targets," he added, referring to acquisition prospects.
Despite the backlog growth and a 29 per cent boost in total profits, Atkins' share price fell $4.26 or nearly eight per cent to 51.53 by late morning.
"Two years ago, this would have been an amazing quarter, but with street forecasts having risen materially as Atkins derisked its business model, this looks solid but akin to Q1," National Bank analyst Maxim Sytchev said. He noted expectations had increased along with a stock that, before markets opened Friday, was up 31 per cent for the year to date.
Sytchev said better profit margins and more free cash flow were the "needed catalysts for shares to find their next leg up."
Three so-called lump-sum turnkey (LSTK) construction contracts also continue to plague Atkins' business: Toronto's Eglinton Crosstown light-rail transit system, Ottawa's Trillium Line and the greater Montreal area's REM light-rail network extension.
Before interest and taxes, losses in the segment amounted to $18.4 million, worse than the $12.6-million loss from the same period the year before.
Losses on the legacy lump-sum projects 鈥� fixed-price contracts under which companies must pay for any cost overruns themselves 鈥� increased due to overhead and commissioning costs, the company said.
However, the cash-draining segment's backlog shrank by 40 per cent from a year earlier. Its remaining $251-million order book stems mainly from the REM contract, which has proven "less problematic" than the other two construction slogs, said Sytchev.
Atkins, which stopped bidding on lump-sum contacts in 2019, when it was still known as SNC-Lavalin, continues to fight a court battle over payments it has not received.
The company reported that profits attributable to shareholders totalled $82.2 million in the three months ended June 30, up from earnings of $63.8 million in the same period a year earlier.
Revenue for the quarter rose 11 per cent $2.36 billion from $2.13 billion the year before.
On an adjusted basis, AtkinsR茅alis said its professional services and project management business earned 49 cents per diluted share in its latest quarter, up from an adjusted profit of 41 cents per diluted share a year ago and roughly in line with analysts' expectations, according to financial markets firm LSEG Data & Analytics.
This report by The Canadian Press was first published Aug. 9, 2024.
Companies in this story: (TSX:ATRL)
Christopher Reynolds, The Canadian Press
