Earnings Spotlight – AAR CORP. (NYSE:AIR)

AAR CORP. (NYSE:AIR) closed with change of 0.30% to $42.95 with the total traded volume of 270511 shares versus to an average volume of 288.90K. The stock was down in the 5 days activity -3.24%. The one month performance of stock was high 1.06%. AIR shares are above 0.68% for the quarter and driving a 25.92% rally over the course of the past year and is now up 9.32% since this point in 2018.  Right now AIR beta is 1.26. The average volatility for the week and month was at 2.32% and 2.61% respectively.

AAR CORP. (NYSE:AIR) recently announced third quarter Fiscal Year 2018 consolidated sales of $456.3 million and income from continuing operations of $31.3 million, or $0.90 per diluted share.  For the third quarter of the prior year, the Company reported sales of $407.2 million and income from continuing operations of $14.4 million, or $0.42 per diluted share.  The current period results include a tax benefit of $13.0 million, or $0.38 per diluted share, to reflect the estimated re-measurement impact of the U.S. Tax Cuts and Job Act on our deferred tax liabilities.

The Company adjusted diluted earnings per share from continuing operations was $0.49 in the current quarter compared to $0.42 in the third quarter of the prior year.  The Company has decided to pursue the sale of our contractor-owned, contractor-operated (COCO) business formerly included in its Expeditionary Services segment.  As a result, the COCO business has been reported as discontinued operations for all periods presented.

Sales in Aviation Services increased 11.4% in the quarter over the prior year representing a continuing trend of double-digit year over year growth.  The strong sales growth in our industry-leading integrated supply chain solutions and parts supply activities has more than offset the impact from the wind-down of the KC-10 CLS Program which declined to $3.6 million in sales in the current quarter from $24.3 million in the prior year quarter.

Sales in Expeditionary Services increased $5.5 million or 22.5% from the prior year period primarily reflecting the continued recovery in sales volumes for our mobility products business.

David P. Storch, Chairman and Chief Executive Officer of AAR CORP said “Our strategy of driving sales growth across all of our connected businesses through our best-in-class aviation services is on track”.  Storch continued, “Our differentiated capabilities provide us the basis to continue on our existing growth trajectory as we progress through our long-term transformation.”

John M. Holmes, President and Chief Operating Officer of AAR CORP said “We continued our success with another strong quarter of results led by our parts supply and programs activities”.  Holmes continued, “We expect this momentum to continue as market demand for our services remains strong and as we ramp-up on new contract awards including the DoS INL/A Worldwide Aviation Support Services (INL/A WASS) program and the USAF Landing Gear PBL program.”

Consolidated gross profit margins increased to 17.0% in the current quarter from 16.3% in the prior year quarter driven by increased sales.  Third quarter sales to commercial customers represented 76.9% of consolidated sales, compared to 74.2% of consolidated sales in the third quarter of last year.  Sales to government and defense customers represented 23.1% of consolidated sales compared to 25.8% in the prior year’s quarter.

Selling, general and administrative expenses as a percentage of sales were 11.7% for the quarter, compared to 10.6% last year.  During the quarter, we incurred approximately $1.1 million of severance costs in connection with an early retirement program.  In addition, we continued to experience legal costs associated with the defense of our INL/A WASS contract.

Net interest expense from continuing operations for the quarter was $2.2 million compared to $1.3 million last year.  Also during the quarter, the Company paid cash dividends of $2.5 million, or $0.075 per share, and repurchased 201,536 shares at an average price of $38.99.  Average diluted share count for the quarter was 34.5 million compared to 34.2 million in the third quarter last year.

As a result of winning the INL/A WASS contract and ramping up our services during the transition period, we have repositioned our key resources to focus on this program into our government-owned, contractor-operated (GOCO) business and have decided to pursue the sale of our COCO business.  The COCO business has been reported as discontinued operations for all periods presented.  We have recognized a goodwill impairment charge of $9.8 million within discontinued operations related to the COCO business.

Holmes continued, “Our decision to shift our focus and essential resources to the GOCO business is designed to deliver superior service to our government customers.  This shift is also important to delivering world class service to the DoS on the recently commenced INL/A WASS program.  We expect to be fully operational on the INL/A WASS program in May at which point the program will be a contributor to earnings.”

Net debt at February 28, 2018 was $172.3 million compared to $159.1 million at February 28, 2017.  During the quarter, the company entered into an accounts receivable financing program to provide additional financial flexibility and availability.  This financing program is off-balance sheet with the receivables sold eliminated from its balance sheet.  The Company incurred $0.4 in one-time fees and expenses to establish the financing program.

Cash flow from operating activities from continuing operations was $50.3 million during the current quarter compared to a use of cash of $18.3 million in the prior year quarter.  The new accounts receivable financing program contributed $52.3 million to the current quarter’s operating cash flows.

Storch continued, “We are affirming our guidance for fiscal 2019 which we previously announced at our Investor Day in January.  This guidance included sales in the range of $2.1 to $2.2 billion, diluted earnings per share from continuing operations in the range of $2.50 to $2.80, and adjusted EBITDA in the range of $180 to $190 million.”

Shares of AAR Corp. have been recently spotted trading -5.81% off of the 52-week high price. On the other end, company shares have been noted 34.34% away from the low price over the last 52-weeks. 52 week range of the stock remained $ 31.97 – 45.60. Switching over to some distances from popular moving averages, we see that the stock has been recorded 3.91% away from the 50 day moving average and 11.03% away from the 200 day moving average. Moving closer, we can see that shares have been trading -0.87% off of the 20-day moving average.

Peter Hamm

Peter Hamm is an author, journalist and CEO of the website. He has more than 5 years of experience in institutional investment markets, including fixed income, equities, derivatives and real estate. He has a Bachelor in Business Administration with a major in Finance. He bought his first stocks in a private business at age 15 and made his first public stock trade at 23. He has always been interested in the stock market and how it behaves. As the dad of two children, he’s made saving money and investing for them a high priority. Over many years of investing, he has made some wise choices and he’s made many mistakes. But he’s learned from both. Mr. Peter observations and experience give him the insight to stock market patterns and the investor behaviors that create them. He reports about Earnings news category. Address: 3876 Levy Court, EASTON, Pennsylvania Email: Peter@newscontrol.info

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