Aecon swings to profit as backlog builds, even as legacy projects drag down earnings

TORONTO – Aecon Group Inc. swung to a profit last quarter, buoyed by the sale of a road-building business and despite losses on a pair of legacy construction projects.

The Toronto-based construction contractor reported net income of $28.2 million in the three months ended June 30, 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.

Helping its overall earnings was the sale of its Ontario road-building segment and of two buildings, yielding total gains of about $70 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.

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.

However, Aecon saw a second-quarter operating loss of $81 million due to 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 project.

The losses stemmed from 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 company said.

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 still below consensus forecasts, according to Khan.