CAE profit takes a hit on military restructuring and budget uncertainty

MONTREAL – Flight simulator and training company CAE Inc. said its third-quarter profit dropped 17 per cent as it absorbed costs to restructure its military operations in Germany and coped with uncertainty about U.S. defence spending.

Montreal-based CAE, which make simulators and offers flight training services for both military and civilian aviation clients, said its net income attributable to equity holders was $37.8 million or 15 cents per share in quarter ended Dec. 31.

That’s down from $45.6 million or 18 cents per share a year earlier.

Total revenue for the quarter was $522.1 million, up 15 per cent from $453.1 million last year, largely due to the acquisition of Oxford Aviation Academy training operations.

Excluding $8.8 million in after-tax restructuring, integration and acquisition costs during the quarter, net income was $46.6 million or 18 cents per share.

CAE was expected to earn 16 cents per share on nearly $544 million of revenues, according to analysts polled by Thomson Reuters.

“Our results for the quarter were as we anticipated, given the integration and restructuring efforts underway in our civil and military segments,” president and CEO Marc Parent said in a release.

“In civil products, simulator wins in the quarter put us on track for annual sales in the mid-30s (while) the integration of recently acquired Oxford is progressing as planned, and we continue to expect significant synergies in civil training as this effort is concluded,” Parent added.

“In military, order levels continued to reflect the delays currently inherent to the defence market, but we had a good win rate and we remain confident given our high level of bid activity.”

So far this fiscal year, CAE has sold 30 full-flight simulators, including six new devices in the quarter, including orders from COMAC of China for its new C919 passenger aircraft. The company sold 37 units in the 2012 financial last year.

The profitability of CAE’s civil simulator and training segment increased 12 per cent to $47.1 million as revenues surged 41 per cent to $287.2 million. The results included the acquisition of Oxford.

Military segment profits dropped nearly 27 per cent to $27 million on a seven-per-cent drop in revenues to $206.2 million.

CAE recently announced more than $100 million in new contracts for training devices and services to the defence forces of 15 countries.

The new core markets segment earned $1.7 million on $28.7 million of revenues in the quarter, compared to a $1.4 million loss on $27.1 million of revenues last year.

CAE Healthcare sold surgical simulator packages to China, Japan and the United States, while the mining operations sold its resource modelling and mine planning software to major mining customers in Africa, Brazil, Mexico and Russia.

Cameron Doerksen of National Bank Financial said CAE beat expectations in part due to a lower-than-forecast tax rate.

Despite lower overall military results, the segment’s operating margin of 13.1 per cent of sales easily beat his forecasts, he said adding the restructuring of operations in Germany should boost segment profits.

“There is still significant near-term uncertainty in the military market, especially in the U.S. where the impact of sequestration on CAE’s programs is unclear, but CAE claims to still have a robust pipeline of new contract bids,” he wrote in a report.

Doerksen has a price target of $12.50 for CAE shares, but said the stock won’t likely increase much from its current trading range until there is more certainty on the military outlook, particularly with the U.S. budget.

On the Toronto Stock Exchange, CAE’s shares lost 12 cents at $10.67 in midday trading Wednesday.

Founded in 1947, CAE has 32 civil aviation, military and helicopter training centres around the world and trains more than 80,000 crew members.

The company had annual revenues last year exceeding $1.6 billion and employs some 8,000 people at more than 100 sites and training locations in more than 20 countries