AAR reports second quarter fiscal year 2024 results

Download full earnings release, including financial statements and tables.

• Second quarter sales of $545 million, up 16% over the prior year
  

• Second quarter GAAP diluted earnings per share from continuing operations of $0.67, compared to $0.64 in Q2 FY2023
  
  
• Record second quarter adjusted diluted earnings per share from continuing operations of $0.81, up 17% from $0.69 in Q2 FY2023
  
  
• Second quarter cash flow provided by operating activities from continuing operations of $17 million
  
  
• Announced highly strategic agreement to acquire Triumph Group’s Product Support business for $725 million

Wood Dale, Illinois, December 21, 2023 — AAR CORP. (NYSE: AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, today reported second quarter fiscal year 2024 consolidated sales of $545.4 million and income from continuing operations of $23.8 million, or $0.67 per diluted share. For the second quarter of the prior year, the Company reported sales of $469.8 million and income from continuing operations of $22.5 million, or $0.64 per diluted share. Our adjusted diluted earnings per share from continuing operations in the second quarter of fiscal year 2024 were $0.81, compared to $0.69 in the second quarter of the prior year. 

Consolidated second quarter sales increased 16% over the prior year quarter. Our consolidated sales to commercial customers increased 24% over the prior year quarter, primarily due to strong demand for our new and used parts offerings, while our consolidated sales to government customers increased 1%. Sales to commercial customers were 71% of consolidated sales, compared to 66% in the prior year quarter.

“We drove another quarter of double-digit sales growth in our commercial business with strong USM and new parts distribution volumes in our Parts Supply segment.  Additionally, the recovery in global flight hours led to growth in our Integrated Solutions segment.  Demand for MRO services continued to be strong and our hangars remained largely full throughout the quarter,” said John M. Holmes, Chairman, President and Chief Executive Officer of AAR CORP.

Gross profit margins were 19.0% in the current quarter, compared to 18.3% in the prior year quarter. Adjusted gross profit margin increased from 18.8% in the prior year quarter to 19.0% in the current quarter, primarily due to the favorable impact of our operating efficiency on increased sales volumes.  

Selling, general, and administrative expenses were $65.7 million in the current quarter, which included $3.1 million related to acquisition and amortization expenses and $2.6 million related to investigation costs. As a percentage of sales, selling, general, and administrative expenses were 12.0% in the current quarter, compared to 11.2% in the prior year quarter.  Excluding acquisition and amortization expenses and investigation costs, selling, general, and administrative expenses as a percent of sales remained consistent at 11.0% of sales in the current and prior year quarters.

Operating margins were 7.0% in the current quarter, compared to 6.9% in the prior year quarter. Adjusted operating margin increased from 7.6% in the prior year quarter to 8.1% in the current year quarter, primarily as a result of the growth in commercial sales. Sequentially, our adjusted operating margin increased from 7.3% to 8.1%, driven by improved profitability in our airframe maintenance facilities.

During and subsequent to the quarter, we announced multiple new contract awards, including:

• Extension and expansion of our airframe MRO services agreement with Alaska Airlines, including the corresponding anticipated construction of a new hangar at our Will Rogers World Airport location in Oklahoma City 
  
  
• Multi-year contract extension with MTU Maintenance, the global market leader in customized solutions for aero engines, to supply parts for Pratt & Whitney PW2000 engines
  
  
• New multi-year distribution agreement to supply Woodward’s fuel control products to the Defense Logistics Agency under our Supplier Capabilities Contract (Captains of Industry)
  
  
• New multi-year Airinmar services agreement with Turkish-based low-cost carrier Pegasus for warranty support services

Holmes continued, “We delivered our 11th straight quarter of operating margin expansion as a result of our improved operating leverage and the favorable contribution from our Trax acquisition.  Additionally, we are proud to have secured multiple new business wins across our segments as the demand for our services remains extremely strong.”

Net interest expense for the quarter was $5.6 million, compared to $2.0 million last year. Average diluted share count increased from 34.7 million shares in the prior year quarter to 35.3 million shares in the current year quarter. We have not repurchased any shares during fiscal year 2024 as a result of deploying capital towards other attractive investment opportunities.  

Cash flow provided by operating activities from continuing operations was $17.4 million during the current quarter with no change in the amount outstanding under our accounts receivable financing program during the quarter. As of November 30, 2023, our net debt was $211.9 million and our net leverage was 1.01x.

Holmes concluded, “Finally, we were excited to announce our agreement to acquire Triumph Group’s Product Support business this morning. This highly strategic transaction is expected to meaningfully improve our operating margins and is consistent with and accelerates our stated strategy to add differentiated capability to our aviation services offerings.”

Conference call information
On Thursday, December 21, 2023, at 3:45 p.m. Central time, AAR will hold a conference call to discuss the results. The conference call can be accessed by registering at call can be accessed by registering at https://register.vevent.com/register/BIe408558c6b344fb2aca2a3d5d43d47f9. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call.

A replay of the conference call will be available for on-demand listening shortly after the completion of the call at https://edge.media-server.com/mmc/p/3ot7y4ra and will remain available for approximately one year.

About AAR
AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services. Additional information can be found at aarcorp.com.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, which reflect management’s expectations about future conditions, including but not limited to expected activities and benefits under services, supply and distribution agreements, the construction of a new hangar at the Company’s location at Will Rogers World Airport in Oklahoma City, our ability to continue to deploy capital to fund further growth and margin expansion, and the pending acquisition of the Product Support business of Triumph Group.

Forward-looking statements often address our expected future operating and financial performance and financial condition, or sustainability targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.

These forward-looking statements are based on the beliefs of Company management, as well as assumptions and estimates based on information available to the Company as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) the impact of pandemics and other disease outbreaks, such as COVID-19, and similar public health threats on air travel, worldwide commercial activity and our and our customers’ ability to source parts and components; (iii) a reduction in the level of sales to the branches, agencies and departments of the U.S. government and their contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) changes in or non-compliance with laws and regulations that may affect certain of our aviation and government and defense related activities that are subject to licensing, certification and other regulatory requirements imposed by the FAA, the U.S. State Department and other regulatory agencies, both domestic and foreign; (vii) a reduction in outsourcing of maintenance activity by airlines; (viii) a shortage of the skilled personnel on whom we depend to operate our business, or work stoppages; (ix) competition from other companies, including original equipment manufacturers, some of which have greater financial resources than we do; (x) financial and operational risks arising as a result of operating internationally; (xi) inability to integrate acquisitions effectively and execute our operational and financial plan related to the acquisitions; (xii) failure to realize the anticipated benefits of the acquisition of Trax USA Corp. (“Trax”) and difficulties integrating Trax’s operations; (xiii) inability to recover our costs due to fluctuations in market values for aviation products and equipment caused by various factors, including reductions in air travel, airline bankruptcies, consolidations and fleet reductions; (xiv) asset impairment charges we may be required to recognize to reflect the non-recoverability of our assets or lowered expectations regarding businesses we have acquired; (xv) threats to our systems technology from equipment failures, cyber or other security threats or other disruptions; (xvi) a need to make significant capital expenditures to keep pace with technological developments in our industry; (xvii) a need to reduce the carrying value of our assets; (xviii) inability to fully execute our stock repurchase program and return capital to our stockholders; (xix) restrictions on paying, or failure to maintain or pay dividends; (xx) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xxi) non-compliance with restrictive and financial covenants contained in certain of our loan agreements; (xxii) non-compliance with laws and regulations relating to the formation, administration and performance of our U.S. government contracts; (xxiii) exposure to product liability and property claims that may be in excess of our liability insurance coverage; (xxiv) impacts from stakeholder and market focus on environmental, social and governance matters; (xxv) the costs of compliance, and liability for non-compliance, with environmental regulations, including future requirements regarding climate change and environmental, social and governance matters, and (xxvi) failure to complete the pending acquisition of the Product Support business of Triumph Group, realize the benefits of the acquisition and successfully integrate the business into our operations.  Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.  Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control.

For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, “Item 1A, Risk Factors” and our other filings from time to time with the U.S Securities and Exchange Commission.  These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company’s control.  The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond the Company’s control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Contact
Dylan Wolin
Vice President, Strategic & Corporate Development and Treasurer
+1-630-227-2017
dylan.wolin@aarcorp.com

Download full earnings release, including financial statements and tables.