Zacks_Analysts' Blog : Earnings Preview: AIR - Analyst Blog

AAR Corp. (AIR) will be reporting its second-quarter 2012 financial results on Thursday, December 15, 2011.

The current Zacks Consensus Estimate for earnings per share (EPS) is 48 cents, representing an annualized growth of 5.71%.  

With respect to earnings surprises over the trailing four quarters, AIR outperformed the Zacks Consensus Estimate in three quarters while underperformed in one.  Average earnings surprise was 12.11%, indicating that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

First-Quarter 2012 Highlights

On September 15, 2011, AAR Corp. posted favorable first-quarter 2012 financial results. The company’s net income surged by approximately 21.8% to $16.6 million or 41 cents per diluted share compared with $13.7 million or 36 cents per diluted share earned in the prior-year quarter. Earnings per share marginally missed the Zacks Consensus Estimate of 43 cents per share.

In the first quarter of 2012, consolidated sales were $479.3 million, up from $404.4 million in the first quarter of 2011. Sales were primarily driven by robust demand for spare parts from government and defense customers and completion of two major aircraft sales within the portfolio.

Cost of sales in the quarter spiked 21% year over year to $404.5 million. The company’s consolidated gross profit margin plummeted 15.6% in the reported quarter from 17.3% in the year-ago comparable quarter.

Agreement of Estimate Revisions   

In the last 30 days, no analyst increased or decreased the company’s earnings per share (EPS) estimates for the current quarter or for the next quarter. Moreover, no analyst increased or decreased the EPS estimate for fiscal 2012, while a similar trend was followed for fiscal 2013. It appears that there has been no catalyst for such change.

Magnitude of Estimate Revisions   

Estimates over the last 30 days remained static at a negative 48 cents per share for the second quarter of 2012, representing a year-over-year growth of  5.71%.

Estimate for fiscal 2012 remained static at $2.03 over the last 30 days while that for fiscal 2012, the trend was followed at $2.41. These estimates represented a year-over-year growth of 10.93% and 18.51% for 2012 and 2013, respectively.

Our Take   

Over time, the worldwide rise in demand for commercial air transport has been creating a robust demand for maintenance and spares parts, equipment and methods of repair and overhaul services. We believe that in such a demand surging environment, the company’s market expertise, technical and financial capabilities will provide it with a strong competitive advantage; thereby facilitating AIR to maintain a satisfactory position in the industry. Further, we are expecting to witness sales growth and a steady improvement in operating margins.

Based in Wood Dale, Illinois, AAR Corp. provides various products and services to the aviation and defense industries worldwide. The company operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul; Structures and Systems; and Government & Defense Services. The company competes directly with its peers such as Goodrich Corp (GR), Boeing Co (BA), Lockheed Martin Corporation (LMT).

We currently maintain a long-term Neutral recommendation on the stock. AIR has a Zacks #2 Rank, which translates into a short-term Buy rating (1-3 months).