CAE raises adjusted EPS outlook to C$1.28–C$1.35 for fiscal 2027
Key Facts
On November 11, CAE raised its fiscal 2027 adjusted earnings per share outlook to a range of C$1.28–C$1.35, from C$1.21–C$1.28, and raised its outlook for the segments' adjusted operating income margin to 14.9%–15.4%, from 14.6%–15.1%. The announcement accompanied results for the fiscal second quarter ended September 30, when revenue was C$1,204.7 million, down 2.6% from the same period a year earlier. Adjusted EPS rose to C$0.33 from C$0.28, while EPS fell to C$0.18 from C$0.23. Operating income was C$114.4 million, compared with C$155.3 million a year earlier. By contrast, adjusted segment operating income rose to C$179.3 million from C$176.7 million, and its margin increased to 14.9% from 14.3%.
The two segments followed divergent paths during the quarter. In civil aviation, revenue fell to C$652.3 million from C$670 million, and adjusted operating income dropped to C$103.9 million from C$124.1 million, bringing the margin down to 15.9% from 18.5%. The company said lower contributions from simulator sales, particularly contracts recognized according to progress toward completion, weighed on profitability, along with higher selling and administrative expenses. This was partly offset by a higher contribution from training services as utilization increased. Training center utilization rose to 65% from 61.9% a year earlier, while CAE delivered 11 full-flight simulators during the quarter, compared with 12 in the same period.
In defense, revenue declined to C$552.4 million from C$566.6 million, but adjusted operating income rose to C$75.4 million from C$52.6 million, lifting the margin to 13.6% from 9.3%. CAE attributed the improvement to higher profitability in products recognized upon delivery and better profitability in North American contracts. The company also recorded C$11 million in investment tax credits identified and claimed during the period, but relating to prior years. Defense orders were C$586 million, equivalent to 1.06 times sales during the quarter. The segment's adjusted backlog reached C$11.3 billion at quarter-end, providing an indication of the volume of booked work yet to be completed.
In civil aviation, the segment signed training solutions contracts worth C$580.6 million, including the sale of 7 full-flight simulators. The book-to-bill ratio was 0.89 times, while adjusted backlog stood at C$8.3 billion. These figures showed new training contracts being signed as segment revenue and adjusted operating income declined during the quarter. At the company level, free cash flow rose to C$179.9 million from C$109.8 million a year earlier. CAE said the increase was mainly due to capital expenditures falling to C$48.9 million from C$107.6 million in the same period.
Chief Executive Matthew Bromberg said the higher outlook reflected the company's performance since the start of the fiscal year and greater confidence in its ability to execute its second-half plan. CAE expects low-single-digit growth in consolidated revenue for fiscal 2027, with civil aviation revenue flat to slightly lower and mid-single-digit growth in defense. The company expects higher year-over-year profitability in defense, while civil aviation profitability is expected to remain below the prior year's level. Bromberg linked the defense profitability outlook to bidding discipline, cost reductions and improved program management. The company estimates the total cost of its transformation plan at about C$200–C$250 million and recorded C$42.6 million in the quarter, bringing cumulative costs to C$175.3 million.
In October, CAE announced an agreement to sell its Flightscape flight operations software business to SITA at an enterprise value of US$500 million, and expects to close the transaction in the first half of 2027. The company said it plans to use the proceeds to fund the transformation, support growth in its core activities and return capital to shareholders. The transformation plan targets recurring annual savings of between C$125 million and C$150 million, while the company expects to incur most of the remaining costs during fiscal 2027. CAE said its outlook assumes mitigation measures remain effective for the rest of the fiscal year. It warned that an escalation of the conflict in the Middle East or a deterioration in regional conditions, including a sustained rise in fuel prices or disruption to airline activity, customer operations and supply chains, could weigh on performance.
Analysts polled by Reuters had forecast earnings of 26.5 cents per share and revenue of $1.25 billion for the quarter ended in September before the results were announced, with EPS estimates having edged lower over the previous two months. CAE scheduled its second-quarter earnings conference for November 12 at 8:00 a.m. Eastern time. It also announced that its Investor and Analyst Day will take place on February 25, 2027, to provide more detail on its strategy, transformation and growth opportunities. The date follows the increases to both its fiscal 2027 adjusted EPS and adjusted operating margin outlook ranges. The company plans to discuss its plan and growth opportunities that day, while its segment outlooks remain mixed between defense and civil aviation.