(Montreal) The difficulties of CAE’s defense segment took the market by surprise, while the shares of the Montreal-based company lost nearly 10% of its value.
In a pandemic context, the defense sector was seen as a growth vector while awaiting the resumption of civil aviation. However, the specialist in flight simulators and pilot training unveiled disappointing results in this segment on Thursday.
Excluding the acquisition of L3 Harris, the division saw its internal revenues decline by 7% in the second quarter (ended at the end of September). Benoit Poirier, of Desjardins Capital Markets, said he was surprised to see the margins of traditional activities decline to 3.7% while those of the L3 Harris acquisition reached 12%.
President and CEO Marc Parent attributed the weakness to business disruptions related to COVID-19. “There are at least five international contracts that were expected for this quarter, but it has not happened,” admits the leader at a conference with analysts to discuss the quarterly results.
He adds that Florida and Texas, where the company has significant operations, have been heavily affected by the Delta variant. “It clearly had an impact. ”
Despite these difficulties, Mr. Parent says “he has never been so optimistic” about the prospects for the company, which has three divisions: civil, defense and health. “We are in an excellent position to take advantage of the cyclical recovery that will take place over several years. ”
Analysts also asked about the balance sheet as CAE has made nine acquisitions since the pandemic began in March 2020. Net debt is 3.55 times earnings before interest, taxes, depreciation and amortization (EBITDA). It does not include the acquisition of Aircentre from Saber, announced last month, for US $ 392.5 million. The airline software provider’s transaction is due to close within the first three months of calendar year 2022.
Sonya Branco, Chief Financial Officer, assured that she was very comfortable with the debt threshold of the company. She anticipates that the debt ratio will drop from 3.55 times to 4 times when the deal is closed. “We believe that we will quickly reduce our debt from the cash generated by the activities. ”
Mr. Bédard did not want to say if there was “a magic number” from which the company would take a break from making acquisitions. “We will continue to watch. We still have a good range of possibilities in front of us. Once again, we will be patient. ”
A return to profitability
While the results of the defense activities did not live up to analysts’ expectations, CAE nonetheless returned to profitability in its most recent quarter and announced a 16% increase in revenues.
The Montreal-based company posted profit attributable to shareholders of 14.0 million, or 4 cents per share, for the quarter ended Sept. 30. That compared to a loss of 5.2 million, or 2 cents per share, for the same quarter a year earlier.
Second quarter revenue totaled $ 814.9 million, up from $ 704.7 million last year.
Excluding non-recurring items, CAE achieved adjusted earnings of 17 cents per share in the most recent quarter, compared to adjusted earnings of 13 cents per share a year earlier.
Analysts on average expected an adjusted profit of 20 cents per share and earnings of $ 899.7 million, according to forecasts collected by financial data firm Refinitiv.
On Wednesday, CAE’s stock ended down $ 4.20, or 10.1%, at $ 37.50 on the Toronto Stock Exchange.
