CAE Inc ((TSE:CAE)) has held its Q4 earnings call. Read on for the main highlights of the call.
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The latest earnings call from CAE Inc. paints a picture of robust financial health, underscored by record free cash flow and substantial backlog growth. Both the Civil and Defense segments have shown strong performance, although challenges such as reduced training center utilization and increased financial costs were noted. Overall, the positive outcomes significantly overshadow these challenges, indicating a favorable sentiment from the earnings call.
Record Free Cash Flow and Backlog
CAE Inc. reported an impressive $289 million in free cash flow for Q4, culminating in a record $814 million for the full year. This achievement translates to a remarkable cash conversion rate of 211%. The company also reached a record end-of-year adjusted backlog of $20.1 billion, marking a 65% increase from the previous year.
Strong Civil Aviation Segment Performance
The Civil segment of CAE Inc. demonstrated exceptional performance, achieving a record adjusted segment operating margin of 28.6% in Q4 and 21.5% for the year. The backlog in this segment grew by 37% to a record $8.8 billion, bolstered by $3.7 billion in new orders.
Defense Segment Growth
The Defense segment of CAE Inc. is on a promising trajectory towards greater profitability, with an adjusted segment operating income margin of 9.2% in Q4. The segment also doubled its adjusted backlog to $11.3 billion, reflecting significant growth.
Revenue and Income Growth
CAE Inc. saw a 13% increase in consolidated revenue in Q4 and a 10% rise for the year. The adjusted segment operating income surged by 33% to $732 million, and the annual adjusted net income climbed to $385.5 million, translating to an increase from $0.87 last year to $1.21 per share.
Reduced Training Center Utilization
The average training center utilization dropped to 75% in Q4 from 78%, attributed to a reduction in pilot hiring in the Americas due to OEM aircraft supply constraints.
Increased Finance and Tax Expenses
CAE Inc. experienced a rise in net finance expenses, which increased to $56.5 million from $52.4 million in Q4 of the previous year. The effective tax rate also rose to 25% from 14% last year.
Forward-Looking Guidance
Looking ahead, CAE Inc. has set robust guidance for the upcoming fiscal year. The company anticipates a mid to high single-digit percentage growth in segment operating income for Civil in fiscal 2026 and a low double-digit growth in Defense. The fiscal year 2026 will target a free cash flow conversion rate of 150% and a reduction in net leverage to 2.5 times, supported by sustained cash flow generation.
In conclusion, CAE Inc.’s earnings call highlights a strong financial performance with record achievements in free cash flow and backlog. While challenges such as reduced training center utilization and increased financial costs exist, the overall sentiment remains positive, with promising growth prospects in both the Civil and Defense segments.