AIR Beats Q1 Earnings, Misses Rev

Ill.-based aerospace/defense products and services supplier, AAR Corp. (AIR) reported fiscal first quarter 2014 (ending August 31, 2013) earnings of 45 cents a share, beating the Zacks Consensus Estimate by a penny. However, the reported figure was flat with the year-ago level. The beat mainly reflects better margins and lower costs.

Revenue

In the fiscal first quarter of 2014, consolidated sales were $514.5 million, down 6.5% year over year and also below the Zacks Consensus Estimate of $538.0 million. The company’s top line experienced an overall decline primarily due to an expected sales reduction in its Technology Products division.

In the quarter, Aviation Services’ revenues of $393.7 million comprised almost 77% of total revenue. Segment revenues decreased 1.1% from the year-ago comparable quarter.

The Technology Products segment contributed approximately 23% of the total revenue in the quarter, corresponding to $120.8 million, down 20.7% year over year.

Margins

Cost of sales in the reported quarter declined 6.6% year over year to $429.8 million and represented 84% of total revenue. Selling, general and administrative expense was $47.7 million, down 10.5% year over year.

The company's operating margin improved 40 basis points to 7.4% in the reported quarter from 7.0% in the year-ago comparable quarter.

Balance Sheet/Cash Flow

Exiting the fiscal first quarter 2014, AAR Corp's cash and cash equivalents were approximately $90.9 million, up from the fiscal 2013 level of $75.3 million. Net property, plant and equipment were $351.2 million, down from $361.7 million in the fiscal 2013. Total outstanding debt was $702.2 million.

Cash flow from operations in fiscal first quarter 2014 was $27.5 million and free cash flow was $20.3 million.

Guidance

Management reaffirmed its earnings per share guidance for fiscal 2014 in the range of $2.00–$2.05 and revenues in the band of $2.175 billion to $2.225 billion. AAR Corp. is confident of its supply chain and repair businesses in fiscal 2014 given its robust position in the growing global outsourced maintenance supply chain market.

Although sales from AAR Corp.’s Aviation Services division dropped from the year-earlier level, the company remains confident of returning to growth in the second quarter. And at the Technology Products segment, sales of mobility products are expected to remain almost flat for the balance of the fiscal year on a year-over-year basis.

Zacks Rank

Currently, AAR Corp. has a Zacks Rank #3 (Hold). However, other aviation companies like Alliant Techsystems Inc. (ATK), Elbit Systems Ltd. (ESLT) and B/E Aerospace Inc. (BEAV) are worth looking into now. While Alliant Techsystems and Elbit Systems sport a Zacks Rank #1 (Strong Buy), B/E Aerospace carries a Zacks Rank #2 (Buy).

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