(AIR) AAR Corporation Fourth Quarter 2011 Earnings Preview

AAR Corp (AIR), the provider of aircraft parts and maintenance, announced that it will release its financial results for the fourth quarter and fiscal year 2011, ended May 31, 2011, after the market closes on Wednesday, July 6, 2011.

The current Zacks Consensus Estimate for earnings per share (EPS) is 45 cents, representing an annualized growth of 45.16%.

With respect to earnings surprises, over the trailing four quarters, AIR outperformed the Zacks Consensus Estimate. The average earnings surprise was a positive 13.93%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third Quarter Highlights

AAR Corp. 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.

The consolidated sales in the reported quarter were $451.0 million, up 50% from $300.8 million in the third quarter of 2010 due to improvements in all business segments, except for Structures and Systems. 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.

Agreement of Estimate Revisions

In the last 30 days, out of the 7 analysts providing estimates, none increased or decreased its earnings per share (EPS) estimates for the fourth quarter and fiscal 2012 as there was no catalyst for such change.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained intact at 45 cents per share for the fourth quarter of 2011, representing a year-over-year growth of 45.16%.

Estimate for fiscal 2011 remained intact at $1.68 while that for fiscal 2012 remained same at $2.14. These estimates represented a year-over-year growth of 42.25% for 2011 and 27.49% for 2012.

Our Take

AAR Corp is likely to post impressive results in the fourth quarter and fiscal 2011 based on expectation of higher revenues from all the segments driven by the company’s strategic order winnings, acquisitions and well-knit customer relationship. Moreover, recovery in global economy as well as increased passenger demand shows positive indication of improved performance, going forward. Management plans to achieve a target of 10% operating margin by 2013.

The company competes directly with its peers such as Goodrich Corp (GR), Boeing Co (BA), Lockheed Martin Corporation (LMT). Of the above peers, Boeing Co will be releasing the second quarter 2011 earnings on July 25, 2011.

We currently maintain a long term Neutral recommendation on the stock. AIR has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

AAR CORP (AIR): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

GOODRICH CORP (GR): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

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