AAR Reports Second Quarter Fiscal Year 2019 Results

WOOD DALE, Ill., Dec. 18, 2018 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported second quarter fiscal year 2019 consolidated sales of $493.3 million and income from continuing operations of $11.2 million, or $0.32 per diluted share.  Second quarter results included a non-cash pre-tax charge of $12.4 million, or $0.27 per diluted share, driven by a European airline customer bankruptcy.  For the second quarter of the prior year, the Company reported sales of $420.6 million and income from continuing operations of $13.2 million, or $0.38 per diluted share.  Our adjusted diluted earnings per share from continuing operations increased 51% from $0.39 last year to $0.59 in the current quarter. 

Consolidated sales increased 17.3% over the prior year period due to continued growth in our trading, distribution and programs activities.  Excluding the impact of the wind-down of the KC-10 CLS program and despite softness in our MRO activities, our Aviation Services sales grew 21.0% year over year. 

"Our robust growth continued into the second quarter driven by exceptional performance in our trading, distribution and programs activities.  These strong results were adversely impacted by a charge related to the bankruptcy of a European program customer which occurred late in the quarter.  While this was an unfortunate development, overall we are confident in the strength and quality of our diverse customer base," said John M. Holmes, President and Chief Executive Officer of AAR CORP. 

During the quarter, we announced several new business wins across the Company which include:

• Distribution agreement with Zodiac Aerospace of the Safran Group to distribute water and waste products
  
  
• Distribution agreement with Ontic of BBA Aviation to distribute electronics products across multiple military platforms
  
  
• Engine supply agreement with Ameco, a Lufthansa Technik and Air China joint venture
  
  
• Government contract to provide maintenance and logistics support for the U.S. Marshals' fleet of Boeing 737 aircraft
  
  
• Joint venture with Napier Park Global Capital, a London based private equity firm, to acquire late life aircraft
  
  

Holmes continued, "We are very pleased with the number of new contract awards across multiple product lines.  We are further encouraged by the robust pipeline of opportunities we see in both the government and commercial markets which validates our growth strategy."

Sales to government and defense customers were 32% of consolidated sales compared to 26% in the prior year's quarter reflecting growth from the WASS program and other government sales.  Second quarter sales to commercial customers, which also increased during the period, represented 68% of consolidated sales compared to 74% of consolidated sales in the second quarter of last year.

Gross profit margins decreased to 15.9% in the current quarter from 16.8% in the prior year quarter due primarily to lower volumes in our airframe maintenance facilities.  Selling, general and administrative expenses as a percentage of sales were 10.0% for the quarter, compared to 11.6% last year, reflecting continued leverage of our cost structure to support our double-digit sales growth.

Net interest expense for the quarter was $2.4 million compared to $1.8 million last year.  Also during the quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share.  Average diluted share count for the quarter was 35.0 million compared to 34.5 million in the second quarter last year.  Cash flow used in operating activities from continuing operations was $8.3 million. 

Holmes concluded, "We acted upon numerous investment opportunities to support the significant growth in our trading, distribution and programs activities. As previously communicated, we expect to generate significant cash flow in the second half of the year and will become cash positive for the entire year." 

Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CT on December 18, 2018. The conference call can be accessed by calling 866-802-4322 from inside the U.S. or 703-639-1319 from outside the U.S.  A replay of the conference call will also be available by calling 855-859-2056 from inside the U.S. or 404-537-3406 from outside the U.S. (access code 4196825). The replay will be available from 7:15 p.m. CT on December 18, 2018 until 10:59 p.m. CT on December 25, 2018.

About AAR
AAR is a global aerospace and defense aftermarket solutions company that employs more than 6,000 people in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through two operating segments: Aviation Services and Expeditionary Services. AAR's Aviation Services include parts supply; OEM solutions; integrated solutions; maintenance, repair, overhaul; and engineering. AAR's Expeditionary Services include mobility systems and composite manufacturing operations. Additional information can be found at www.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. These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, including those factors discussed under Item 1A, entitled "Risk Factors", included in the Company's Form 10-K for the fiscal year ended May 31, 2018. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control. The Company assumes 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. For additional information, see the comments included in AAR's filings with the Securities and Exchange Commission.