CAE Q2 Revenue Dips 2.6% to C$1.2 Billion, Raises Fiscal 2027 Adjusted EPS Outlook

CAE Inc. reported results for the fiscal second quarter ended September 30, 2026. Revenue was $1,204.7 million, down 2.6% from $1,236.6 million a year earlier. EPS was $0.18 versus $0.23 in the prior year, while adjusted EPS rose to $0.33 from $0.28. Operating income was $114.4 million, or 9.5% of revenue, versus $155.3 million, or 12.6%, and included restructuring costs of $42.6 million.

Adjusted segment operating income rose 1.5% to $179.3 million, or 14.9% of revenue, from $176.7 million, or 14.3%. Adjusted order intake was $1,166.6 million and adjusted backlog stood at $19,576.7 million. Free cash flow in the quarter was $179.9 million and net debt-to-adjusted EBITDA was 2.16x. Year-to-date through the end of the second quarter, CAE repurchased 3.0 million common shares for $106.1 million.

The company raised its fiscal 2027 outlook: adjusted EPS is now expected at $1.28 to $1.35, up from $1.21 to $1.28, and adjusted segment operating income margin at 14.9% to 15.4%, up from 14.6% to 15.1%. Revenue is still expected to grow at a low-single-digit percentage, with Civil revenue flat to slightly down and Defense growing at a mid-single-digit rate. The cash conversion rate outlook remains 85% to 95%.

In Civil, second-quarter revenue was $652.3 million versus $670.0 million a year earlier. Operating income was $61.3 million, or 9.4% of revenue, versus $108.7 million, or 16.2%. Adjusted segment operating income was $103.9 million, or 15.9% of revenue, versus $124.1 million, or 18.5%, mainly reflecting a lower contribution from simulator sales.

CEO Matthew Bromberg said business aviation performed strongly and training utilization was higher year over year in both commercial and business aviation, while Defense delivered double-digit year-over-year growth in adjusted segment operating income.

In October, CAE announced an agreement to sell Flightscape to SITA for US$500 million, with closing expected in the first half of calendar 2027. The total cost of the transformation plan is expected to be about $200 million to $250 million, of which $42.6 million was incurred in the quarter and $175.3 million to date. CAE is targeting $125 million to $150 million of annual run-rate savings. The company said geopolitical uncertainty in the Middle East continues to pressure the aviation industry, and that it is taking mitigation actions, including redeploying some training activities within its global network.

The quarter shows how a training and simulation business earns its margin across two different clocks. Training utilization follows flying activity and responds quickly when business and commercial operators fly more, which is why CAE can report higher utilization while revenue slips. Simulator sales follow delivery schedules and lumpy customer orders, and a lower contribution from them is what pulled Civil's adjusted margin from 18.5% to 15.9%. For the segment, steady training demand cushions a business that is otherwise exposed to the timing of equipment deliveries.

The larger structural point is that earnings improvement at CAE is currently coming from cost and portfolio actions rather than from revenue growth. The guidance still calls for only low-single-digit revenue growth and flat to slightly lower Civil revenue, while the margin outlook was lifted. The $125 million to $150 million of targeted annual savings and the Flightscape sale, priced at US$500 million, are the levers behind that, and both depend on execution over the coming quarters.

The dated milestone to follow is the Flightscape closing, expected in the first half of calendar 2027, alongside how much of the remaining transformation spend, roughly $25 million to $75 million beyond the $175.3 million incurred so far, lands in coming quarters. A further read on the Middle East pressure CAE cites will come through whether training redeployments continue to be needed.