AAR Corporation (AIR) reported results for the second quarter of fiscal 2010. The company posted quarterly earnings of 34 cents per share, beating the Zacks Consensus Estimate of 31 cents and prior year earnings of 27 cents per share (last year’s EPS was adjusted to comply with the new accounting standard).
AAR posted revenue of $328.7 million, down 7.0% from $353.6 million reported in the year ago quarter. A 4% increase in sales to defense and government customers (48% of total sales), was more than offset by a 15% drop in sales to commercial customers (52% of total sales).
Airlines have further reduced inventory levels and maintenance visits in response to weak economic conditions and tight credit markets. The company reported a sales decline of 11% in its Aviation Supply Chain segment and 18% in its Maintenance, Repair, and Overhaul segment. However, AAR saw a 7% surge in sales in its Structures and Systems segment, driven by increased demand for its specialized mobility products.
During the first half of fiscal 2010, AAR generated $58 million of cash flow from operations. As on Nov 30, 2009, the company had $105.7 million in cash and cash equivalents and approximately $223 million borrowing capacity under its credit agreements.
AAR won a couple of contracts during the second quarter, which are expected to have a positive impact on the company’s results in the second half of fiscal 2010. The company has been selected to provide supply chain services and logistics support for the U.S. Air Force’s KC-10 fleet. AAR’s portion of the indefinite delivery/indefinite quantity contract is valued at approximately $600 million over nine years. This contract is expected to begin generating revenue in February 2010.
In addition, it won significant maintenance and engineering business from new and existing customers during the quarter. The company said that this work began in December and will increase through January. Once fully operational, this new business is expected to generate incremental revenue at a run rate of $5 million to $10 million per quarter.
Also, AAR signed an agreement with Sikorsky Aircraft Corporation. AAR will be the exclusive provider of composite interiors for the Sikorsky S-92 Offshore/Airline Program under the agreement. Moreover, the two companies will explore opportunities to align AAR’s diverse capabilities with Sikorsky’s manufacturing and support requirements, strengthening AAR’s presence in the rotorcraft market.
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