(Montreal) CAE shares fell more than 17% on Wednesday, as the specialist in pilot training and flight simulators took the market by surprise with its difficulties in the military segment.
Posted at 4:32 p.m.
The company announced Wednesday that it was recording a $28.9 million charge related to two separate military programs in the United States. “The results in defense have clearly been below our own expectations,” President and CEO Marc Parent said at a press conference.
The Defense segment recorded a loss of 30.3 million in the first quarter of its fiscal year 2023 (ended at the end of June), compared to a profit of 22.6 million for the corresponding period of the previous fiscal year.
In June, the management was taken by surprise and realized problems that would force it to put charges on two military programs in the United States, says Mr. Parent. He assures that CAE has reviewed its entire portfolio to ensure that the charges to be recorded are limited to these two contracts.
The first contract is related to military training and the second contract, to a “very complex” flight simulator, said the leader.
For the simulator program, absences related to COVID-19 have resulted in additional costs. “Several dozen employees who have very high security qualifications and who were working in close proximity had COVID at the same time, and this delayed the schedule significantly. This caused costs that we are not able to recover in the period we have left. We also had significant delays in the delivery of parts. »
For the training contract, CAE had planned ways to improve its profitability at renewal, but the US military has not yet indicated its intention to renew it, which forces CAE to register a load, even if it s waiting for the contract to be renewed.
These headwinds forced CAE to revise its financial forecast downwards. Management now expects operating profit to grow 25% in fiscal 2023 (ending at the end of March). It previously forecast growth of around 35%.
In a conference call with analysts, Parent said management anticipates supply chain challenges, the scarcity of highly skilled labor and the faster spread of COVID. -19.
Even without these two programs, the profitability would have been low and it would still have been lower than we would have expected. If it hadn’t been for loads, I think we would have been able to maintain our forecast.
Marc Parent, President and CEO of CAE
Wednesday’s announcement should encourage caution, says analyst Tim James of TD Securities. “We believe the change in guidance, and what it implies for earnings predictability, warrants greater caution at this time. »
The difficulties in the defense sector took the market by surprise. Across all of its businesses, CAE’s net profit fell 92% to $3.7 million in the first quarter from $47.3 million at the same time last year.
Revenues, for their part, jumped 24%, from 752.7 million last year to 933.3 million this year.
The company reported adjusted earnings per share of 6 cents, compared to 19 cents in the same period last year. Prior to the earnings release, analysts had expected earnings per share of 23 cents, according to Refinitiv.
Despite the difficulties in the defense sector, Mr. Parent reiterated that the demand for defense remains strong while the Russian invasion in Ukraine and the political tensions in Taiwan are a reminder of the importance of the military sector.
CAE’s stock fell $5.86, or 17.62%, to close at $27.39 on the Toronto Stock Exchange.