AAR Corp Misses on Q1 Earnings & Revenues, Guides Lower - Analyst Blog

Aerospace and defense products and services supplier AAR Corp. (AIR) reported fiscal first quarter 2015 (ending Aug 31, 2014) earnings of 36 cents per share, missing the Zacks Consensus Estimate of 41 cents by 12.2%. The reported number was also down 20% from the year-ago figure of 45 cents mainly due to lower contribution from its defense customers.

Revenue

In the fiscal first quarter of 2015, consolidated sales were $469.2 million, down 8.8% year over year and below the Zacks Consensus Estimate of $496.0 million. The company's top line declined due to lower contributions from both its Aviation Services and Technology Products segments.

Segment Details

In the reported quarter, Aviation Services' revenues of $363.7 million comprised 78% of total revenues. Segment revenues declined 7.6% from the year-ago quarter. The downtrend was due to a 27% decline in sales to defense customers owing to the drawdown of aircraft positions in Afghanistan and for the delay in commencement of new contracts in Africa for its airlift business. However, this was partly offset by a 7% increase in revenues from commercial customers given its strength in supply chain.

The Technology Products segment contributed 22% to total revenues in the quarter, corresponding to $105.5 million (down 12.7% year over year). The decrease was mainly due to lower sales of mobility products.

Margins

Cost of sales in the reported quarter decreased 8.4% year over year to $393.9 million and represented 84% of total revenues. Selling, general and administrative expense increased 5.9% to $44.9 million. As a percentage of sales, selling, general and administrative expenses stood at 9.6% this quarter as against 9.3% in the year-ago quarter.

Financial Update

In the fiscal first quarter of 2015, cash and cash equivalents were approximately $81.8 million, down from $89.2 million at fiscal 2014 end. Net property, plant and equipment were $287.9 million, down from $314.9 million at the end of fiscal 2014. Total outstanding debt was $627.1 million.

Cash flow from operations in first quarter fiscal 2015 was $15 million and free cash flow was $6 million. The company paid dividends totaling $3.0 million.

Guidance

The company has lowered its earnings expectation for fiscal 2015 to the range of $1.65–$1.75 per share from its earlier outlook of $1.80−$1.90 per share. Total revenues are now expected in the band of $2.0 billion to $2.05 billion, down from its previous expectation of $2.1 billion to $2.15 billion.

In spite of the slashed guidance the company expects its supply chain business and its maintenance, repair, and overhaul businesses to grow given its strong position in the growing global aviation services market.

Zacks Rank

Currently, AAR Corp. holds a Zacks Rank #3 (Hold). Players in the aerospace and defense industry with a favorable Zacks Rank include Ducommun Inc. (DCO), B/E Aerospace Inc. (BEAV) and Curtiss-Wright Corp. (CW). While Ducommun holds a Zacks Rank #1 (Strong Buy), B/E Aerospace and Curtiss-Wright carry a Zacks Rank #2 (Buy).