Engineering giant WSP reports revenue growth, defying investor angst around AI

Canadian engineering giant WSP Global Inc. WSP-T closed out its most recent quarter with accelerating growth and predicted more to come, defying investor angst that artificial intelligence will bite into corporate profits for the sector.

Its stock shot up 5 per cent, to $189.99 a share in afternoon trading on the Toronto Stock Exchange.

The Montreal-based company, which has ballooned through acquisitions and is currently trying to negotiate a multibillion-dollar takeover of Dutch engineering ​consultancy group Arcadis, on Thursday reported results that beat analyst expectations. It raised its financial guidance slightly for the year.

Net revenue for the quarter ended June 26 came in at $4.3-billion, up 23 per cent over the same period last year, including a 5-per-cent pickup in growth from existing operations. All regions performed well, notably Canada and the United States.

Adjusted earnings before interest, taxes, depreciation and amortization jumped 29 per cent year-over-year to $815-million or $2.88 a share, compared with the $2.82 a share analysts expected. Net earnings were $246-million or $1.83 a share, down from the year before, on higher acquisition and integration costs among other items.

WSP’s key recent projects include the Purple Line subway extension in Los Angeles – one of the largest and most complex transit infrastructure programs in the U.S. Overall, its backlog of work booked but not yet completed reached a record $20.1-billion in the quarter.

“The numbers do the talking,” Raymond James analyst Frederic Bastien said in a research note on WSP’s performance. “While AI’s long-term impact on engineering consultancies remains a key investor debate, we believe these results point to improving earnings visibility rather than rising risk.”

Unease about the prospects of engineering firms in the age of AI has hung over the industry in recent months, pushing down shares of WSP and Stantec Inc. STN-T and others amid broader market gains. The fear is that AI will be able to cheaply, and easily, perform tasks that consultants currently charge hefty fees for.

The reality is probably much more complicated than that, however. And it stands to hit different companies in different ways.

National Bank analyst Maxim Sytchev published a report on the issue in April, after a presentation by WSP in Toronto focused on its technology capabilities. Among his conclusions: WSP sees AI “first and foremost as a revenue opportunity, rather than a cost-cutting lever.”

The company is using digital tools to simplify complex processes and shorten work delivery cycles, enabling it to “do more work with the same experts,” Mr. Sytchev said. That’s “a critical advantage in a structurally labour-constrained industry,” he said.

Mr. Bastien said he believes AI will further widen the gap between big engineering companies with scaled-up operations and smaller rivals. “The WSPs of this world have greater capacity to invest in digital capabilities and productivity-enhancing tools,” he said in his note.

WSP continues to hunt for acquisitions to increase its operational expertise, confirming late last month that it made a non-binding offer of €51.50 a share in cash and stock for Amsterdam-based Arcadis – valuing the engineering and consulting firm at about €4.7-billion (US$5.4-billion). Arcadis rejected the bid, WSP’s second, saying it still undervalues the company.

WSP executives did not provide any new information Thursday about the takeover effort, saying only that combining the two companies would speed up their growth ambitions. Arcadis’s biggest shareholder is Lovinklaan, a foundation managed by company employees, whose support is key to a deal.

“We have approached this dialogue in a constructive and respectful manner for many months and continue to view it as a potential friendly transaction between two great companies,” WSP chief executive Alexandre L’Heureux said on Thursday.