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AAR Corp. Beats Q4 Earnings Ests, Misses Rev and Guides Well

Zacks Equity Research

Aerospace and defense products and services supplier, AAR Corp. (AIR) reported fiscal fourth quarter 2014 (ending May 31, 2014) earnings of 43 cents per share, beating the Zacks Consensus Estimate of 41 cents by 4.9%. The reported number was considerably higher than the year-ago figure of only 1 cent. The upsurge came mostly on the back of lower costs.

The company earned $1.83 per share in fiscal 2014, up 32.6% from the year-ago earnings of $1.38 per share.


In the fiscal fourth quarter of 2014, consolidated sales were $505.4 million, down 8.7% year over year and below the Zacks Consensus Estimate of $510.0 million. The company’s top line declined due to lower contribution from its Aviation Services and Technology Products segments.

Fiscal 2014 top line experienced a 4.8% decline year over year to $2,035.0 million.

Segment Details

In the reported quarter, Aviation Services’ revenues of $373.8 million comprised 74.0% of total revenues. Segment revenues declined 10.4% from the year-ago quarter.

The downtrend was due to a decline in MRO (Maintenance, repair and operations) sales as well as less expeditionary airlift flying positions.

The Technology Products segment contributed 26.0% to total revenues in the quarter, corresponding to $131.6 million (down 3.7% year over year). The decrease was mainly due to lower contribution from commercial cargo systems.


Cost of sales in the reported quarter decreased 15.0% year over year to $419.6 million and represented 83.0% of total revenues. Selling, general and administrative expense edged up 1.5% to $53.3 million from the year-ago level. As a percentage of sales, selling, general and administrative expenses stood at 10.5% this quarter as against 9.5% in the year-ago quarter.

Financial Update

In the fiscal fourth quarter of 2014, cash and cash equivalents were approximately $89.2 million, up from $75.3 million at fiscal 2013 end. Net property, plant and equipment were $314.9 million, down from $361.7 million at the end of fiscal 2013. Total outstanding debt was $634.0 million.

Cash flow from operations in fourth quarter fiscal 2014 was $63.1 million and free cash flow was $57.8 million. The company paid dividends totaling $3.0 million.


The company expects earnings for fiscal 2015 in the range of $1.80–$1.90 per share. Total revenues are expected in the band of $2.1 billion to $2.15 billion.

The company expects its supply chain business and its maintenance, repair, and overhaul businesses to grow given its strong position in the growing global aviation services market.

Zacks Rank

Currently, AAR Corp. has a Zacks Rank #3 (Hold). Players in the aerospace and defense industry with a favorable Zacks Rank include B/E Aerospace Inc. (BEAV), CAE Inc. (CAE) and Curtiss-Wright Corporation (CW). All of these stocks hold a Zacks Rank #2 (Buy).

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