AAR Reports Second Quarter Fiscal Year 2015 Results

WOOD DALE, Ill., Dec. 18, 2014 /PRNewswire/ — AAR (NYSE: AIR) today reported second quarter fiscal year 2015 consolidated sales of $490.0 million and net income of $15.2 million, or $0.38 per diluted share. For the second quarter of the prior fiscal year, the Company reported sales of $540.7 million and net income of $20.0 million, or $0.50 per diluted share.

Within the Aviation Services segment, sales decreased 11.1% to $377.7 million. Supply chain sales to commercial and defense customers experienced double-digit growth but this was offset by lower sales of the Company’s airlift and MRO services, although MRO facility utilization ramped up during the quarter. Comparability of financial performance for this quarter was also negatively impacted by the sale of two aircraft in the prior year period.

Within the Technology Products segment, sales declined by 3.2%. Commercial and military cargo sales experienced double-digit growth offset by lower sales of mobility products.

“Today we reported second quarter FY 2015 results in line with our expectations. Sales to commercial customers increased 2.1% primarily due to the double-digit growth from our Aviation Services supply chain business,” said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. “As we enter the second half of Fiscal 2015, we expect reduced revenues from our businesses that are tied to military operational tempo, while we expect solid growth from our Aviation Services supply chain and MRO businesses that, in total, should lead to sales growth on a consolidated basis.”

During the quarter, the Company experienced the following business wins:

Commercial

Renewed a five-year agreement with Allegiant for airframe maintenance of their MD-80 and 757 fleet of aircraft.
Supported approximately 100 aircraft from the Company’s supply chain hub in Brussels where an additional power-by-the-hour contract for a new customer’s fleet of 737s is expected.
Government and defense

Awarded a $49 million contract by the Department of the Navy, Naval Supply Systems Command, to provide personnel recovery, casualty evacuation and search and rescue airlift services in West Africa.
Received a one-year extension on the vertical replenishment contract for airlift services for U.S. Naval vessels in the Western Pacific and Indian Oceans.
Selected by AMMROC (Advanced Military Maintenance Repair and Overhaul Center), the Abu Dhabi-based Joint Venture between Mubadala Development Company, Sikorsky and Lockheed Martin, to support the design, outfitting and integration of key areas of AMMROC’s state-of-the-art facility in Al Ain, UAE.
Second quarter sales to commercial customers represented 64.7% of consolidated sales, compared to 57.4% of consolidated sales in the second quarter of last year, while sales to government and defense customers represented the balance.

Consolidated gross profit margin was 16.0% for the second quarter down from 16.8% last year due to unfavorable margin mix. Aviation Services segment gross profit margin was 16.9%, up slightly from 16.8% in the prior year period, and Technology Products gross profit margin declined to 13.0% from 17.0% in the prior year period.

Selling, general and administrative expenses declined $4.0 million over the prior year as a result of cost-saving measures implemented by the Company.

Net interest expense for the quarter decreased to $9.5 million from $10.2 million in the second quarter of last year.

During the quarter, the Company generated $16.0 million in cash flow from operations and free cash flow of $8.0 million while increasing its investment in its supply chain business to fund future growth. The Company paid cash dividends of $3.0 million and re-purchased shares for $1.7 million.

Average diluted share count for the quarter was 39.1 million compared to 39.2 million in the second quarter last year.