AAR Beats on Q2 Earnings, Sees Growth in Aviation Services - Analyst Blog

Aerospace and defense products and services supplier AAR Corp. (AIR) reported fiscal second quarter 2015 (ending Nov 30, 2014) earnings of 38 cents per share, beating the Zacks Consensus Estimate by just a penny. The reported number, however, was down 24% from the year-ago earnings of 50 cents per share mainly due to lower sales from both its segments.

 

Revenue

In the fiscal second quarter of 2015, consolidated sales were $490 million, down 9.4% year over year but ahead of the Zacks Consensus Estimate of $480 million by 2.1%. 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 $377.7 million comprised 77% of total revenues. Segment revenues declined 11.1% from the year-ago quarter. The downtrend was due to lower contributions from its airlift and MRO services, although MRO facility utilization gained during the quarter. This was partly offset by double-digit growth in supply chain sales to commercial and defense customers.

The Technology Products segment contributed 23% to total revenues in the quarter, corresponding to $112.3 million (down 3.2% year over year). The decrease was mainly due to lower sales of mobility products, which was partially offset by double-digit growth in commercial and military cargo sales.

Margins

Cost of sales in the reported quarter decreased 8.5% year over year to $411.5 million and represented 84% of total revenues. Selling, general and administrative expense decreased 7.8% to $47.1 million. As a percentage of sales, selling, general and administrative expenses stood at 9.6% this quarter as against 9.5% in the year-ago quarter.

Financial Update

In the fiscal second quarter of 2015, cash and cash equivalents were approximately $92.6 million, up from $89.2 million at fiscal 2014 end. Net property, plant and equipment were $288.5 million, down from $314.9 million at the end of fiscal 2014. Total outstanding debt was $635.3 million.

Cash flow from operations in second quarter fiscal 2015 was $16 million while free cash flow was $8 million. The company paid dividends totaling $3 million and repurchased shares worth $1.7 million.

Guidance

The company had earlier projected earnings for fiscal 2015 in the range of $1.65–$1.75 per share. Total revenues for fiscal 2015 were expected in the band of $2.0 billion to $2.05 billion.

The company expects its supply chain and its MRO businesses to grow given its strong position in the thriving global aviation services market.

For the second half of the fiscal, the company expects continued double-digit growth, as high as 20% year over year, from its Aviation Services supply chain business.

Zacks Rank

Currently, AAR Corp. holds a Zacks Rank #3 (Hold). Players in the aerospace and defense industry with a favorable Zacks Rank include Spirit AeroSystems Holdings, Inc. (SPR), Teledyne Technologies Inc. (TDY) and Hexcel Corp. (HXL). While Spirit AeroSystems and Teledyne Technologies hold a Zacks Rank #1 (Strong Buy), Hexcel carries a Zacks Rank #2 (Buy).
 

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