AAR Corp. Guides Higher – Analyst Blog

AAR Corp. (AIR) updated its guidance for the fourth quarter of fiscal 2010, which was provided by management last month.

 

AAR now expects its fourth quarter EPS to be at the higher end of the 25 to 30 cents range announced previously. The company also anticipates its revenue and cash flow from operations to slightly exceed the guidance of $355 to $365 million and $50 million, respectively, provided earlier. Thus, revenue in the fiscal 2010 is expected to be approximately $1.35 billion.

 

For fiscal 2011, revenue is expected in the range of $1.5 to $1.6 billion and EPS within $1.25 to $1.40. 

 

The expected growth in revenue would stem from the acquisition of Aviation Worldwide Services, a leading provider of expeditionary airlift services and aircraft modifications for the U.S. and other governments.

 

Management expects the acquired business to be accretive to earnings and margins in its first year of ownership and to generate $175 million of revenue on an annual basis.

 

AAR generates a majority of its revenue from sales to government and defense customers. In the third quarter of fiscal 2010, AAR generated approximately 50% of its total revenues from this segment.

 

We believe that AAR will perform well once the market recovers due to its industry leading supply chain and MRO positions. The company’s strict cost control initiative is another positive. New products, equipment and methods will help the company get contracts.

 

However, the cyclical nature of the aviation industry is discouraging, and AAR’s huge capital requirement is another drawback. Thus, we reiterate our Neutral recommendation.