CAE stock plunges as profits fall below expectations amid sputtering airline recovery

·3 min read

MONTREAL — CAE Inc. shares dropped 10 per cent Thursday as earnings fell far short of expectations despite a big bump in revenue and profit.

The Montreal-based builder of flight and training simulators saw revenues jump by 16 per cent in the quarter ended Sept. 30 while posting a $14-million profit.

However, simulator utilization fell to 53 per cent of capacity due to lower demand for commercial and business pilot training brought on by COVID-19, though CAE said the key metric has begun to tick back up.

Meanwhile, pandemic-induced delays in orders and "program execution" hurt its military training business, said CEO Marc Parent. Defence sales, which range from simulator upgrades to training services, account for just over half the company's revenue.

"For a training centre where we train international customers of the C-130 H" — a military transport plane — "well, imagine, there's no customers coming," Parent said. "Eventually you run out of backlog that you can execute in an efficient manner.

"But the situation's changing, borders are opening, international travellers come back. The COVID situation is credibly much better," Parent said.

"We're continuing to expect strong year-over-growth in this year. So clearly we're going to have a pretty good second half," he added.

Goldman Sachs analyst Noah Poponak said on the call that pilots' lagging use of CAE training centres fails to square with air-sector recoveries in Europe and elsewhere.

"When people are flying a lot, they're not training a lot. And that's why we always have a seasonal dip in the quarter," which encompasses the vacation-heavy months of July and August, Parent replied.

Time logged by pilots at the company's global network of training centres was particularly low in Asia and the Middle East amid renewed lockdowns in some countries.

CAE expects full recovery in the civil aviation side of its business in the second half of 2022, fuelled by pent-up demand and contingent on wound-down travel restrictions and quarantine measures.

Parent also pointed to last month's announcement of CAE's proposed acquisition of Texas-based Sabre’s AirCentre — the airline operations business includes software for carriers' crew and flight management — for US$392.5 million. AirCentre marked CAE's ninth would-be acquisition since the COVID-19 pandemic began in March 2020.

"There's a palpable optimism out there as vaccination rates increase," Parent said.

Investors felt otherwise, as CAE shares fell 10.1 per cent or $4.20 on Thursday to close at $37.50 on the Toronto Stock Exchange.

Nonetheless, National Bank analyst Cameron Doerksen said recovery on the civil aviation side is "simply a matter of time."

"Business aviation flying activity is now well above pre-pandemic levels and commercial airlines in most parts of the world are seeing a steady rebound in air travel demand," he said in a note to investors.

CAE said it earned a profit attributable to shareholders of $14 million or four cents per diluted share in its second quarter, compared with a loss of $5.2 million or two cents per diluted share a year earlier.

The figure fell far short of the net income of about $59 million expected by analysts, according to financial markets data firm Refinitiv.

Revenue last quarter totalled $814.9 million, up from $704.7 million but below the roughly $900 million expected by analysts. Civil aviation training revenue fell about one per cent to $362.1 million while defence and security revenues increased 38 per cent to $417.9 million.

On an adjusted basis, CAE said it earned 17 cents per share compared with an adjusted profit of 13 cents per share in the same quarter last year.

Analysts on average had expected CAE to report an adjusted profit of 20 cents per share, according to Refinitiv.

This report by The Canadian Press was first published Nov. 11, 2021.

Companies in this story: (TSX:CAE)

Christopher Reynolds, The Canadian Press

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