(AIR) AAR Corporation Posts Strong Results

AAR Corp. (AIR), the provider of aircraft parts and maintenance, posted encouraging results for the fourth quarter and fiscal 2011. The company’s net income from continuing operations surged by approximately 91% to $22.7 million or $0.55 per share compared with $11.9 million or $0.31 per share earned in the prior-year quarter. Earnings per share also surpassed the Zacks Consensus Estimate of $0.46 per share.

For FY11, income from continuing operations was recorded at $73.1 million, or $1.81 per diluted share compared with $45.4 million or $1.21 per diluted share for fiscal year 2010.

Revenue

In the fourth quarter, consolidated sales were $479.8 million, up 31.5% from $364.8 million in the fourth quarter of 2010 due to improved market condition and market share gains on the backdrop of strong demand for maintenance and spare parts from domestic as well as international customers.

Revenue from the Aviation Supply Chain business was $111.2 million, up 16.2% year over year and accounted for about 23.2% of total revenue. Government and Defense Services revenue of $160.3 million accounted for 33.4% of total revenue and increased substantially from $30.5 million in the year-ago quarter.

Maintenance, Repair and Overhaul segment, which accounted for roughly 22.9% of total revenue, generated revenue of $109.8 million, up 37.8% year over year. Structures and Systems revenue was $98.6 million (20.5% of total revenue), down from $108.9 million in the year-ago quarter.

During the reported quarter, the company along with its joint venture partners entered into negotiations with the intention of selling five aircrafts from the leased aircraft portfolio for delivery in fiscal year 2012.

For FY11, consolidated saleswere recorded at $1,775.8 million, up 34.9% y/y.

Margins

Cost of sales in the quarter increased 31.8% year over year to $392.9 million and represented 81.9% of total revenue. The company’s consolidated gross profit margin inched down to 17% in the reported quarter from 18.3% in the year-ago comparable quarter. Selling, general and administrative expense of $49 million increased 17.8% year over year and was 10.2% of total revenue. The increase in selling, general and administrative expenses is attributable to the relocation expenses of AAR Airlift to its new Florida location.

Balance Sheet

Exiting the fourth quarter, AAR Corp’s cash and cash equivalents was approximately $57.4 million, slightly up compared with $54.7 million in the previous quarter. Long-term debt, net of current portions was $427.4 million, down slightly from $429.5 million in the previous quarter.

Cash Flow

Cash flow from operating activities in the fourth quarter amounted to $48.7 million compared with $30.1 million in the previous quarter. Net interest expense increased $0.9 million year over year.

Going forward, the company expects positive trends in the commercial air transportation markets and strategic contract winnings. The company competes directly with its peers such as Goodrich Corp (GR), Boeing Co (BA) and Lockheed Martin Corporation (LMT).

We currently maintain a long-term Outperform recommendation on the stock. AAR Corp. has a Zacks #2 Rank, which translates into a short-term Buy 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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