CAE doesn't see American nationalism creeping into military contract loss

MONTREAL – Intense competition for U.S. military contracts is driving down prices, but the head of flight simulator and training company CAE isn’t worried.

The Montreal-based company recently lost a hotly contested bid to supply a training system for the U.S. air force’s new KC-46 tanker.

CAE chief executive Marc Parent said the tanker contract, which was awarded to FlightSafety, also attracted bids from L-3, Lockheed Martin and Boeing.

“Clearly everybody wants to win in the military. So, it does become at some point, as it was in KC-46, a price shootout, but I feel very good about our ability to win,” Parent said Thursday after reporting better-than-expected quarterly results.

He said CAE has about $2.1 billion of outstanding contract bids that should allow it to sustain its business.

“I don’t think we’re going to shoot the lights out, but neither do I think we’re going to go down that much,” he told analysts.

CAE (TSX:CAE) said it earned $43.8 million or 17 cents per share for the period ended March 31, down from $53.2 million, or 21 cents per share a year ago.

However, excluding $10.1 million of restructuring, integration and acquisition costs, it earned $53.9 million or 21 cents per share.

Revenue in what was the company’s fourth quarter grew to $587.9 million from $506.7 million last year.

CAE was expected on average to earn 18 cents per share in adjusted profits on $585.2 million of revenues, according to analysts polled by Thomson Reuters.

The news helped send CAE shares to a 52-week high of $11.44 in trading Thursday before closing up 66 cents at $11.26 on the Toronto Stock Exchange.

Parent said U.S. defence budget cuts have created more uncertainty, but it doesn’t change the company’s long-term outlook for its business.

For the financial year ended March 31, it earned $139.4 million or 54 cents per share on $2.1 billion in revenue, compared with $180.3 million or 70 cents per share on $1.8 billion in revenue the previous year.

Adjusted income was $190.7 million or 74 cents per share, four cents above analyst forecasts and the results a year ago.

Its order backlog reached a record $4.1 billion.

CAE sold 10 full-flight simulators in the fourth quarter and met its outlook by selling 35 full flight civil simulators last year. It expects strong demand for civil full-flight simulators again in the coming year.

Analyst Cameron Doerksen of National Bank Financial said the results were “modestly ahead of forecast.”

He said civil margins were a little soft as the company integrated Oxford Aviation, an airline pilot training company that CAE acquired last year, and ramped up new simulator training centres.

And, Doerksen said, he expects the lower civil training margins to continue for a couple of more quarters.

Despite lower military revenues, margins beat forecasts amid uncertainty over U.S. defence budget spending.

“We believe that a robust pipeline for new contracts remains and expect relatively flat military results in fiscal 2014,” he wrote in a report.

CAE employs about 8,000 people at more than 100 sites and training locations in approximately 30 countries.