UPDATE 4-CAE sees uncertainty for defense unit, shares drop

Wed Aug 10, 2011 2:54pm EDT

* Q1 2012 earnings C$43.1 mln, up from C$37.2 mln Q1 2011

* EPS C$0.17, up from C$0.14

* Revenue C$427.9 mln vs C$366.4 mln

* Shares down as much as 4.3 pct on TSX (Recasts lead, adds detail from earnings call, mainly on military business)

TORONTO, Aug 10 (Reuters) - CAE Inc said on Wednesday (CAE.TO) that budget pressure in the United States and Europe could squeeze its military flight simulator business in the short term, and its shares dropped 3 percent.

The stock slid even after the Canadian company released quarterly results that strengthened, mostly on the back of its civil aviation business, especially in emerging markets.

"Given the recent U.S. government budget debate, the fiscal year 2012 defense budget appropriations process is less than certain," Chief Executive Marc Parent said on a conference call.

Even so, Parent suggested the company may benefit over the long term as budget-conscious forces look to cut training costs by using more simulation.

CAE's military business accounted for nearly half of its revenue in the first fiscal quarter ended June 30, and about 40 percent of its operating profit.

Profit during the quarter rose to C$43.1 million, or 17 Canadian cents a share, from C$37.2 million, or 14 Canadian cents, in the same period last year.

Revenue rose to C$429.7 million from C$366.4 million.

"Full-flight simulator sales are off to a strong start and we signed three pivotal joint venture agreements, including the total outsourcing of training by AirAsia, one of the world's fastest growing airlines," said Parent in a release.

Revenues also rose from the defense business, but that unit's operating profit dipped on profit margin pressure and order delays.

The company reported operating losses of C$2.6 million, in what it calls its "new core markets." That includes the sale of medical simulators, as well as modeling and planning technologies for the mining sector.

Shares were down 3 percent to C$11.48 on Wednesday afternoon on the Toronto Stock Exchange.

(Reporting by Allison Martell; Editing by Frank McGurty)

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