Zacks_Analysts' Blog : AIR Revs Up, Misses Estimate - Analyst Blog

On December 15, 2011, AAR Corp. (AIR) posted favorable second-quarter 2012 financial results. The company’s net income improved by approximately 4.2% to $17.5 million or 43 cents per diluted share compared with $16.8 million or 42 cents per diluted share earned in the prior-year quarter. Earnings per share, however, missed the Zacks Consensus Estimate of 46 cents in the reported quarter.

Revenue

In the second quarter of 2012, consolidated sales were $475.9 million, up from $440.5 million in the second quarter of 2011. The sales rise was mainly attributable to robust demand for spare parts from government and defense customers. Sales to commercial customers increased 11% y/y, principally driven by strength at the company's supply chain business. Sales to government and defense customers increased 5% compared to last year due to sales growth at AAR Airlift and at the Defense Logistics business.

During the quarter, the company acquired Airinmar Holdings Limited (Airinmar), a leading provider of repair management services. Further, AAR Corp. signed a definitive purchase agreement to acquire Telair International GmbH (Telair) and Nordisk Aviation Products, AS (Nordisk) from Teleflex Incorporated.

Revenue from the Aviation Supply Chain business was $143.4 million, up 28.8% year over year, accounting for about 30.1% of total revenue. Government and Defense Services revenue of approximately $142.4 million accounted for 29.9% of total revenue, increasing substantially from $134.4 million in the year-ago quarter.

Maintenance, Repair and Overhaul segment, which accounted for roughly 19.3% of total revenue, generated revenue of $91.9 million, down 7.2% year over year. Structures and Systems revenue was $98.3 million (20.7% of total revenue), up from $95.8 million in the year-ago quarter.

Margins

Cost of sales in the quarter spiked 8.7% year over year to $398.7 million. The company’s operating margin plummeted marginally to 7.2% in the reported quarter from 8.0% in the year-ago comparable quarter. Gross profit margins were lower in the company''s Government and Defense Services segment due to lower-than-expected aircraft availability at AAR Airlift and in the Structures and Systems

However, AAR Corp. experienced margin improvement primarily due to increased sales and better product availability at the Aviation Supply Chain segment along with operational efficiencies at the company's airframe maintenance centers.

Selling, general and administrative expense was recorded at $43.1 million, up from $40.9 million in the year-ago quarter.

Balance Sheet

Exiting the second quarter of 2012, AAR Corp’s cash and cash equivalents were approximately $27.9 million, down compared with $35.5 million in the previous quarter. Net property, plant and equipment were $345.1 million, up from $335.3 million in the previous quarter.

During the quarter, the company paid a quarterly cash dividend of $0.075 per share to its stockholders and also purchased 145,000 shares of AAR Corp. stock; pursuant to its board of directors share repurchase authorization at an average acquisition price of $18.07.

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).