Stantec has announced it has reached a deal to sell its problematic MWH Constructors division. This division was acquired in May 2016 as a portion of the acquiistion of MWH Global which included substantial core free-for-service business. The MWH Contructors division has represented about 22% of Stantec’s revenues but was a drag on earnings. The Constructors division took Stantec into a riskier line of business where it took much more risk in terms of cost to complete projects. And these risks have materialized as substantial loses on some projects. The sale will return Stantec to a pure-play fee-for-service business model.
Stantec has not disclosed terms of the deal. Given the division was problematic it seems reasonable to assume it was sold at a loss. That is unfortunate but the move is probably positive for Stantec. The stock has not reacted much, up only 1.8% this morning on a day when most stocks are rising.
It seems reasonable to expect that Stantec will report growth in earnings in Q3 on an adjusted basis but quite likely an earnings decline on a GAAP basis after accounting for the sale.