On March 20, 2012, AAR Corp. (AIR) posted favorable third-quarter 2012 financial results. The company’s net income improved by approximately 15.6% to $20.7 million or 50 cents per diluted share compared with $17.9 million or 44 cents per diluted share earned in the prior-year quarter. Earnings per share beat the Zacks Consensus Estimate by a penny.
Revenue
In the third quarter of 2012, consolidated sales were $534.2 million, up from $458.0 million in the third quarter of 2011. Sales were primarily driven by strong results within the Aviation Supply Chain segment, which benefited from earlier investments and robust demand from airline customers. Moreover, the newly-acquired businesses like Telair International GmbH (Telair) and Nordisk Aviation Products, AS (Nordisk), generated strong sales revenue during the third quarter in the Structures and Systems segment. The acquisitions were completed on December 2, 2011.
Revenue from the Aviation Supply Chain business was $134.2 million, up 11.8% year over year and accounted for about 25.1% of total revenue. Government and Defense Services revenue of approximately $133.7 million comprised 25.0% of total revenue and decreased slightly from $147.3 million in the year-ago quarter.
Maintenance, Repair and Overhaul (MRO) segment, which accounted for roughly 21.0% of total revenue, generated $112.0 million, up 3.7% year over year. Structures and Systems revenue was $154.2 million (28.9% of total revenue), up from $82.7 million in the year-ago quarter.
Cost of sales in the quarter spiked 17.9% year over year to $447.2 million. The company’s operating margin dropped marginally to 6.7% in the reported quarter from 7.6% in the year-ago comparable quarter.
Enhanced product availability improved margins compared with the prior year in the Aviation Supply Chain segment. However, margins in the MRO segment and Government and Defense Services were lower on a year-over-year basis due to delayed aircraft availability issues at the company’s airlift operation as well as unscheduled maintenance inspections. Moreover, the company’s Structures and Systems segment continued to face higher-than-expected start-up costs and cost overruns.
Selling, general and administrative expense was $51.3 million, up from $44.1 million in the year-ago quarter.
Balance Sheet
Exiting the third quarter of 2012, AAR Corp’s cash and cash equivalents were approximately $59.3 million, significantly up from $27.9 million in the previous quarter. Net property, plant and equipment were $357.1 million, up from $345.1 million in the sequentially preceding quarter.
During the quarter, the company completed the sale of $175 million of senior unsecured notes due 2022, the proceeds of which were used to repay a part of its borrowings incurred under the revolving credit agreement during the purchase of Telair and Nordisk. On February 13, 2012, the company paid a quarterly cash dividend of $0.075 per share to its stockholders of record as of January 30, 2012.
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 # 3 Rank, which translates into a short-term Hold rating (1-3 months).
To read this article on Zacks.com click here.
Zacks Investment Research
