Investment Q&A

CAE missed on revenue and EPS estimates for Q4. EPS came in at 37c versus expectations of 42c. Revenue missed expectations of $1.29B coming in at $1.13B and declined 6% year-over-year. The defense segement continued to be an issue for CAE, and in the quarter it accounted for significant charges related to goodwill impairment, unfavorable contract adjustments, and impairment of related intangible assets with the company's outstanding 'legacy contracts.' Excluding these non-cash charges, results were still slightly weaker than expected due to revenue weakness in both civil and defense; this was offset by stronger-than-expected civil segment margins. The company updated its fiscal 2024 outlook reflecting these results. Previous outlook for Civil included an expectation for mid- to high-teens percentage annual adjusted segment operating income growth, and management currently expects 13% growth, mainly because some of the planned full-flight simulator deliveries moved into fiscal 2025. For Defense, management continues to expect that it will accelerate the retirement of risks associated with the Legacy Contracts and substantially retire them over a period of six to eight quarters. The continued weakness in defense and now with civil seeing a bit of a slowdown is not positive for CAE. There is still future potential in the defense segement with the re-baslining that has occured and accelerated risk measures, all which could benefit future quarters. The stock will likely take a hit today and things may continue to be slow with these near-term pressures. Yes, we would agree it will likely be in the penalty box for a while.