AAR (NYSE:AIR) Posts Q2 Sales In Line With Estimates
Aviation and defense services provider AAR CORP (NYSE:AIR) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 18.7% year on year to $656.5 million. It made a non-GAAP profit of $0.88 per share, improving from its profit of $0.84 per share in the same quarter last year.
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AAR (AIR) Q2 CY2024 Highlights:
Revenue: $656.5 million vs analyst estimates of $659.5 million (small miss)
EPS (non-GAAP): $0.88 vs analyst estimates of $0.84 (4.6% beat)
Gross Margin (GAAP): 19.4%, in line with the same quarter last year
Free Cash Flow of $17 million, up 16.4% from the previous quarter
Market Capitalization: $2.59 billion
"We delivered another record quarter driven by both record performance in our new parts distribution activities and the Triumph Product Support acquisition, which exceeded our expectations during the period. We also continued to drive growth in our heavy maintenance hangars out of our existing footprint. In addition to this record performance in our commercial business, we saw double-digit growth in our government business," said John M. Holmes, Chairman, President and Chief Executive Officer of AAR.
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE:AIR) is a provider of aircraft maintenance services
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Regrettably, AAR's sales grew at a weak 2.5% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AAR's annualized revenue growth of 12.9% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
AAR also breaks out the revenue for its three most important segments: Parts Supply, Repair & Engineering, and Integrated Solutions, which are 39.6%, 33%, and 24.9% of revenue. Over the last two years, AAR's revenues in all three segments increased. Its Parts Supply revenue (engine and airframe parts) averaged year-on-year growth of 20% while its Repair & Engineering (maintenance, repair, and overhaul services) and Integrated Solutions (fleet management) revenues averaged 19.2% and 17.7%.
This quarter, AAR's year-on-year revenue growth clocked in at 18.7%, and its $656.5 million of revenue was line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 18.6% over the next 12 months.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
AAR was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5%.
On the bright side, AAR's annual operating margin rose by 3.6 percentage points over the last five years.
This quarter, AAR generated an operating profit margin of 5%, down 1.6 percentage points year on year.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
AAR's EPS grew at an unimpressive 6.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.5% annualized revenue growth and tells us the company became more profitable as it expanded.
Diving into the nuances of AAR's earnings can give us a better understanding of its performance. As we mentioned earlier, AAR's operating margin declined this quarter but expanded by 3.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For AAR, its two-year annual EPS growth of 17.4% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, AAR reported EPS at $0.88, up from $0.84 in the same quarter last year. This print beat analysts' estimates by 4.6%. Over the next 12 months, Wall Street expects AAR to grow its earnings. Analysts are projecting its EPS of $3.33 in the last year to climb by 23.9% to $4.13.
Key Takeaways from AAR's Q2 Results
It was good to see AAR beat analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on track. The stock remained flat at $73.29 immediately following the results.
So should you invest in AAR right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.