AARCorp. (AIR) posted encouraging results for the third quarter of fiscal year 2011. The company’s net income from continuing operations surged 74.3% to $18.3 million or 45 cents per share compared with $10.5 million or 28 cents per share earned in the prior-year quarter. Earnings per share also surpassed the Zacks Consensus Estimate of 42 cents per share.

Revenue

In the third quarter, consolidated sales were $451.0 million, up 50% from $300.8 million in the third quarter of 2009 due to improvements in all business segments, except for Structures and Systems.

Revenue from the Aviation Supply Chain business was $113.0 million, up 39.2% year over year and accounted for about 25.0% of total revenue. Government and Defense Services revenue of $147.3 million accounted for 32.7% of total revenue and increased substantially from $38.4 million in the year-ago quarter.

Maintenance, Repair and Overhaul segment, which accounted for roughly 24.0% of total revenue, generated revenue of $108.0 million, up 52.9% year over year. Structures and Systems revenue was $82.7 million, down 25.3% year over year.

In the third quarter 2011, the company concluded that it will exit its Amsterdam component repair facility and is evaluating a number of strategic alternatives.

Margins

Cost of sales in the quarter increased 53.8% year over year to $373.3 million and represented 82.7% of total revenue. High cost of sales pulled down the company’s gross margin from 19.4% to 17.2% in the quarter. Selling, general and administrative expense of $42.5 million increased 24.7% year over year and was 9.4% of total revenue.

Balance Sheet

Exiting the third quarter, AAR Corp’s cash and cash equivalents were approximately $54.7 million compared with $49.3 million in the previous quarter. Long-term debt, net of current portions was $429.5 million, down slightly from $429.6 million in the previous quarter.

Cash Flow

Cash flow from operating activities in the third quarter amounted to $30.1 million compared with $22.6 million in the year-ago quarter. Capital spending in the quarter was $22.4 million  compared with $22.9 in the third quarter of fiscal 2010.

AAR Corp. provides various products and services to the aviation and defense industries worldwide. We currently maintain an Outperform recommendation on the stock.

 
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