11/11/2014 01:29 EST | Updated 01/11/2015 05:59 EST

WSP Global foresees recovery next year in Canadian operations as Q3 profit surges

MONTREAL - Engineering consulting firm WSP Global hopes to see its Canadian operations rebound next year as important contracts are awarded in Western Canada and weakness in Eastern Canada is expected to continue to dissipate.

"Hopefully we will hit the trough in the fourth quarter of the year and hopefully see some positive momentum in 2015," CEO Pierre Shoiry said Tuesday during a conference call to discuss third-quarter results.

As was the case following a reorganization in Britain a couple of years ago, WSP expects the fourth quarter will be "flattish" before positive momentum starts in the first quarter.

Overall revenues grew 49 per cent in Canada last quarter thanks to the acquisition of Alberta-based Focus. Organic sales in Canada decreased 4.4 per cent, although that was an improvement from declines of 11.3 and 13 per cent over the prior two quarters.

WSP's legacy operations in Canada continued to be slow in Eastern Canada as a result of weaker energy and industrial markets. Operations in Alberta performed well due to strong industrial and oil and gas markets. Shoiry noted energy is a cyclical industry, but is not showing any immediate sign of a major slowdown as a result of falling oil prices.

"Right now, the outlook is good. The backlog is solid. And we'll see how the industry evolves," he told analysts.

In Quebec, WSP is awaiting decisions over the next three to six months on two large Montreal infrastructure projects — the new Champlain bridge and Turcot Exchange highway project — where WSP and its partners are among three groups in the running to win lucrative contracts.

Shoiry said the projects could represent "a good momentum swing for us if we were to be fortunate enough to work on one of those two projects."

WSP's profit surged 36 per cent to $29.1 million in the third quarter as organic growth in much of the world offset decreases in Canada.

The net income amounted to 46 cents per share, up $7.8 million or three cents per share from a year earlier.

Excluding non-operating expenses related to WSP's acquisition of Parsons Brinckerhoff, Montreal-based WSP said that it had $34.4 million of net income, or 55 cents per share.

On the Toronto Stock Exchange, the company's shares (TSX:WSP) closed up five per cent, gaining $1.72 or $36 on Tuesday.

Revenue was $630.7 million, up 28.6 from a year earlier, while net revenue excluding subconsultants was $537.4 million, up 31.8 per cent.

WSP was expected to earn 53 cents of net income and $520.35 million of revenues, according to analysts polled by Thomson Reuters.

Shoiry said the results demonstrated the company has made progress in pursuing its growth strategy both organically and from acquisitions.

Global organic growth was 12.3 per cent, helped by a 6.3 per cent favourable foreign currency adjustments and an acceleration from two per cent internal growth in the second quarter.

Maxim Sytchev of Dundee Capital Markets said WSP's results were strong, especially compared with competitors who missed forecasts.

"WSP's results stand in stark contrast, an impressive achievement especially with all the moving merge and acquisition parts," he wrote in a report.

Meanwhile, the company's deeper U.S. footprint following the Parsons Brinckerhoff acquisition puts it in a position to profit from recovery in the U.S. economy, he said.

The US$1.24-billion acquisition of Parsons Brinckerhoff, the professional services arm of Balfour Beatty, closed Oct. 31. The deal had financial backing from the Canada Pension Plan Investment Board and the Caisse de depot, both of which increased their holdings in WSP.

In the United States, revenues were up 25 per cent, including half from internal operations driven by strong buildings and infrastructure markets.

United Kingdom net revenues grew 31 per cent on a 16.5 per cent increase in organic revenues. Northern Europe continued to face weakness in Germany that was offset by strength in WSP's Swedish operations.

The company's net revenue in the rest of the world was up 28 per cent overall and 17.6 per cent internally on strength in the Middle East and the recovery of WSP's Asian and Australian businesses.

WSP's backlog stood at $1.88 billion at the end of September, representing about nine months of revenue. That was up 2.7 per cent from the second quarter and 21 per cent from the prior year.

Shoiry said it was premature to discuss the next phases of the company's growth strategy, which will be unveiled in 2015.

"Clearly, our focus right now is to deliver on our integration plan and deliver on the performance of this combined business," he said, adding that WSP will continue to invest in its current markets.

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