WOOD DALE, Ill., Dec. 19, 2019 /PRNewswire/ -- AAR CORP.
(NYSE: AIR) today reported second quarter Fiscal Year 2020
consolidated sales of $560.9 million
and income from continuing operations of $20.1 million, or $0.57 per diluted share. For the second
quarter of the prior year, the Company reported sales of
$493.3 million and income from
continuing operations of $11.2
million, or $0.32 per diluted
share. Our adjusted diluted earnings per share from
continuing operations were $0.64 in
the current quarter compared to $0.60
in the second quarter of the prior year.
Consolidated sales increased 14% over the prior year period due
to continued growth across our Aviation Services segment, which
grew 15% during the quarter. This growth was driven by strong
demand for both new and aftermarket parts, significant improvement
in MRO and solid execution on our government contract
awards.
"This is our sixth consecutive quarter of double-digit sales
growth. Revenue in our parts supply and government programs
activities remains very strong and we continue to see meaningful
recovery in MRO as a result of our labor initiatives. Our
focus on integrating our differentiated capabilities across our
best-in-class aviation services offering continues to be a
successful model for growth," said John M.
Holmes, President and Chief Executive Officer of AAR
CORP.
During the quarter, we expanded the scope of our component
repair services program with BAE for its regional jet support
programs to include more components. BAE cited our consistent
cost savings and the high-quality delivered by our Amsterdam facility as the basis for this
expansion.
We also announced two contracts within our Airinmar subsidiary,
the top global provider of component repair cycle management and
aircraft warranty solutions. We signed a three-year agreement
with JetBlue to provide component value engineering cost oversight
services. We also entered into an agreement with Alaska
Airlines for a digital trial of our Airvolution platform which
provides airlines maximum visibility into their component repair
cycle as well as access to our proprietary analytics and business
intelligence capabilities.
Sales to government and defense customers were 33% of
consolidated sales compared to 32% in the prior year's quarter
reflecting growth from new government programs. Second
quarter sales to commercial customers, which also increased during
the period, represented 67% of consolidated sales compared to 68%
of consolidated sales in the second quarter of last year.
Gross profit margins decreased to 15.3% in the current quarter
from 15.9% in the prior year quarter due primarily to operational
challenges and delayed contract awards in Expeditionary
Services. Aviation Services gross profit margins were
relatively flat at 16.1% compared to 16.2% in the prior year
quarter.
Selling, general and administrative expenses as a percentage of
sales were 10.2% for the quarter compared to 10.0% last year,
reflecting increased costs related to severance, investigation and
compliance matters of $3.3
million. Excluding these costs, selling, general and
administrative expenses as a percentage of sales were 9.6% compared
to 9.9% in the prior year quarter.
Net interest expense for the quarter was $1.8 million compared to $2.4 million last year. Also during the
quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share. Average diluted share
count was 35.0 million in both the current and prior year
quarters.
Cash flow provided by operating activities from continuing
operations was $19.9 million during
the current quarter compared to a use of cash of $8.3 million in the prior year quarter.
Excluding our accounts receivable financing program, our adjusted
cash flow provided by operating activities from continuing
operations was $20.4 million in the
current quarter compared to a use of cash of $14.9 million in the prior year quarter.
Holmes concluded, "The fundamentals of our commercial and
government end-markets remain strong and are driving continued
demand for our services. I am proud of our team for their
successful execution in the first two quarters, and we are excited
about the opportunities we see for the balance of the fiscal
year."
Outlook
We are raising our financial guidance for Fiscal Year 2020,
which now includes sales in the range of $2.150 to $2.225
billion and adjusted diluted earnings per share from
continuing operations of $2.50 to
$2.65. Our previous guidance
included sales in the range of $2.1
to $2.2 billion and adjusted diluted
earnings per share from continuing operations of $2.45 to $2.65. Compared to our prior financial
guidance, the midpoint of our revised sales guidance increased from
$2.150 to $2.188 billion and the midpoint of our revised
adjusted diluted earnings per share from continuing operations
increased from $2.55 to $2.58. We continue to expect selling,
general and administrative expenses to be approximately 10.5% of
sales and anticipate an effective tax rate of 24% in Fiscal Year
2020.
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CST on December
19, 2019. The conference call can be accessed by calling
866-802-4322 from inside the U.S. or 703-639-1319 from outside the
U.S. A replay of the conference call will also be available
by calling 855-859-2056 from inside the U.S. or 404-537-3406 from
outside the U.S. (access code 3846045). The replay will be
available from 7:15 p.m. CST on
December 19, 2019 until 10:59 p.m. CST on December
24, 2019.
About AAR
AAR is a global aerospace and defense aftermarket solutions
company that employs more than 6,000 people in over 20 countries.
Headquartered in the Chicago area,
AAR supports commercial and government customers through two
operating segments: Aviation Services and Expeditionary Services.
AAR's Aviation Services include parts supply; OEM solutions;
integrated solutions; maintenance, repair, overhaul; and
engineering. AAR's Expeditionary Services include mobility systems
and composite manufacturing operations. Additional information can
be found at www.aarcorp.com.
This press release
contains certain statements relating to future results, which are
forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. These
forward-looking statements are based on beliefs of Company
management, as well as assumptions and estimates based on
information currently available to the Company, and are subject to
certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated,
including those factors discussed under Item 1A, entitled "Risk
Factors", included in the Company's Form 10-K for the fiscal year
ended May 31, 2019. Should one or more of these risks or
uncertainties materialize adversely, or should underlying
assumptions or estimates prove incorrect, actual results may vary
materially from those described. These events and
uncertainties are difficult or impossible to predict accurately and
many are beyond the Company's control. The Company assumes no
obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events. For
additional information, see the comments included in AAR's filings
with the Securities and Exchange Commission.
|
AAR CORP. and
Subsidiaries
|
|
|
|
|
|
Consolidated
Statements of Income
|
Three Months
Ended
|
|
Six Months
Ended
|
(In millions
except per share data - unaudited)
|
November 30,
|
|
November 30,
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
Sales
|
$
560.9
|
|
$ 493.3
|
|
$
1,102.4
|
|
$ 959.6
|
Cost and
expenses:
|
|
|
|
|
|
|
|
Cost of
sales
|
475.0
|
|
415.0
|
|
934.9
|
|
810.1
|
Provision for doubtful
accounts
|
0.7
|
|
12.4
|
|
1.4
|
|
13.0
|
Selling, general and
administrative
|
57.1
|
|
49.1
|
|
115.2
|
|
97.3
|
|
|
|
|
|
|
|
|
Operating
income
|
28.1
|
|
16.8
|
|
50.9
|
|
39.2
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
(1.8)
|
|
(2.4)
|
|
(3.9)
|
|
(4.0)
|
Other income
(expense), net
|
(0.2)
|
|
(0.2)
|
|
(0.4)
|
|
0.2
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income tax expense
|
26.1
|
|
14.2
|
|
46.6
|
|
35.4
|
Income tax
expense
|
6.0
|
|
3.0
|
|
9.4
|
|
5.3
|
Income from
continuing operations
|
20.1
|
|
11.2
|
|
37.2
|
|
30.1
|
Loss from
discontinued operations
|
(5.9)
|
|
(4.2)
|
|
(18.6)
|
|
(8.0)
|
Net
income
|
$
14.2
|
|
$
7.0
|
|
$
18.6
|
|
$
22.1
|
|
|
|
|
|
|
|
|
Earnings per share
– Basic:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.58
|
|
$ 0.32
|
|
$
1.07
|
|
$ 0.87
|
Loss from discontinued
operations
|
(0.17)
|
|
(0.12)
|
|
(0.54)
|
|
(0.23)
|
Earnings per share –
Basic
|
$
0.41
|
|
$ 0.20
|
|
$
0.53
|
|
$ 0.64
|
|
|
|
|
|
|
|
|
Earnings per share
– Diluted:
|
|
|
|
|
|
|
|
Earnings from continuing
operations
|
$
0.57
|
|
$0.32
|
|
$
1.06
|
|
$ 0.85
|
Loss from discontinued
operations
|
(0.17)
|
|
(0.12)
|
|
(0.53)
|
|
(0.23)
|
Earnings per share –
Diluted
|
$
0.40
|
|
$0.20
|
|
$
0.53
|
|
$ 0.62
|
|
|
|
|
|
|
|
|
Share
Data:
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
34.6
|
|
34.6
|
|
34.6
|
|
34.6
|
Weighted average
shares outstanding – Diluted
|
35.0
|
|
35.0
|
|
35.0
|
|
35.1
|
AAR CORP. and
Subsidiaries
|
|
|
|
|
|
Consolidated
Balance Sheets
|
November
30,
|
|
May
31,
|
(In
millions)
|
2019
|
|
2019
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
38.2
|
|
$ 21.3
|
Restricted
cash
|
14.5
|
|
19.8
|
Accounts
receivable, net
|
208.5
|
|
197.8
|
Contract
assets
|
62.2
|
|
59.2
|
Inventories,
net
|
580.4
|
|
523.7
|
Rotable assets and
equipment on or available for lease
|
69.1
|
|
65.3
|
Assets of
discontinued operations
|
27.4
|
|
29.2
|
Other current
assets
|
71.9
|
|
36.2
|
Total current
assets
|
1,072.2
|
|
952.5
|
Property, plant,
and equipment, net
|
134.3
|
|
132.8
|
Operating lease
right-of-use assets, net
|
103.8
|
|
––
|
Goodwill and
intangible assets, net
|
129.4
|
|
138.4
|
Rotable assets
supporting long-term programs
|
225.6
|
|
216.0
|
Other non-current
assets
|
89.6
|
|
77.5
|
Total
assets
|
$
1,754.9
|
|
$ 1,517.2
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Accounts payable
and accrued liabilities
|
$
364.6
|
|
$ 328.3
|
Liabilities of
discontinued operations
|
41.9
|
|
29.2
|
Total current
liabilities
|
406.5
|
|
357.5
|
Long-term
debt
|
196.1
|
|
141.7
|
Operating lease
liabilities
|
84.0
|
|
––
|
Other liabilities
and deferred income
|
146.6
|
|
112.1
|
Total
liabilities
|
833.2
|
|
611.3
|
Equity
|
921.7
|
|
905.9
|
Total liabilities and
equity
|
$
1,754.9
|
|
$ 1,517.2
|
|
AAR CORP. and
Subsidiaries
|
|
|
Consolidated
Statements of Cash Flows
|
Three Months
Ended
|
|
Six Months
Ended
|
(In millions –
unaudited)
|
November
30,
|
|
November
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cash flows
provided from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
$
14.2
|
|
$ 7.0
|
|
$
18.6
|
|
$ 22.1
|
Loss from
discontinued operations
|
5.9
|
|
4.2
|
|
18.6
|
|
8.0
|
Income from
continuing operations
|
20.1
|
|
11.2
|
|
37.2
|
|
30.1
|
Adjustments
to reconcile income from continuing operations to net
cash provided from (used
in) operating activities
|
|
|
|
|
|
|
|
Depreciation and intangible
amortization
|
11.0
|
|
10.4
|
|
21.8
|
|
20.5
|
Amortization of stock-based
compensation
|
2.8
|
|
1.2
|
|
7.1
|
|
5.2
|
Provision for doubtful
accounts
|
0.7
|
|
12.4
|
|
1.4
|
|
13.0
|
Changes in certain assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(10.4)
|
|
(30.8)
|
|
(11.0)
|
|
(52.1)
|
Contract
assets
|
(0.1)
|
|
(14.3)
|
|
(2.8)
|
|
(13.4)
|
Inventories
|
(26.8)
|
|
(27.6)
|
|
(56.8)
|
|
(52.1)
|
Rotable assets
supporting long-term
programs
|
(5.3)
|
|
(18.8)
|
|
(19.1)
|
|
(26.7)
|
Accounts payable
and accrued liabilities
|
19.6
|
|
30.2
|
|
24.6
|
|
5.7
|
Other
|
8.3
|
|
17.8
|
|
(12.6)
|
|
28.6
|
Net cash
provided from (used in) operating activities – continuing
operations
|
19.9
|
|
(8.3)
|
|
(10.2)
|
|
(41.2)
|
Net cash
provided from (used in) operating activities – discontinued
operations
|
(5.4)
|
|
(0.2)
|
|
(7.7)
|
|
5.7
|
Net cash
provided from (used in) operating activities
|
14.5
|
|
(8.5)
|
|
(17.9)
|
|
(35.5)
|
|
|
|
|
|
|
|
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
|
Property,
plant and equipment
expenditures
|
(5.7)
|
|
(3.8)
|
|
(10.2)
|
|
(8.0)
|
Other
|
(2.5)
|
|
(0.5)
|
|
(1.5)
|
|
(1.0)
|
Net cash
used in investing activities – continuing operations
|
(8.2)
|
|
(4.3)
|
|
(11.7)
|
|
(9.0)
|
Net cash
used in investing activities – discontinued
operations
|
––
|
|
(0.1)
|
|
––
|
|
(0.4)
|
Net cash
used in investing activities
|
(8.2)
|
|
(4.4)
|
|
(11.7)
|
|
(9.4)
|
|
|
|
|
|
|
|
|
Cash flows
provided from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from (repayments on) borrowings,
net
|
(5.0)
|
|
10.0
|
|
55.0
|
|
42.0
|
Cash
dividends
|
(2.6)
|
|
(2.6)
|
|
(5.5)
|
|
(5.3)
|
Purchase of
treasury stock
|
(4.1)
|
|
––
|
|
(4.1)
|
|
––
|
Other
|
––
|
|
1.7
|
|
(4.3)
|
|
8.2
|
Net cash provided
from (used in) financing activities – continuing
operations
|
(11.7)
|
|
9.1
|
|
41.1
|
|
44.9
|
Net cash used in
financing activities – discontinued
operations
|
––
|
|
(0.2)
|
|
––
|
|
(0.7)
|
Net cash provided
from (used in) financing activities
|
(11.7)
|
|
8.9
|
|
41.1
|
|
44.2
|
Effect of exchange
rate changes on
cash
|
0.1
|
|
(0.1)
|
|
0.1
|
|
(0.2)
|
Increase
(Decrease) in cash and cash
equivalents
|
(5.3)
|
|
(4.1)
|
|
11.6
|
|
(0.9)
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
58.0
|
|
44.8
|
|
41.1
|
|
41.6
|
Cash, cash
equivalents, and restricted cash at end of
period
|
$
52.7
|
|
$ 40.7
|
|
$
52.7
|
|
$ 40.7
|
|
AAR CORP. and
Subsidiaries
|
|
|
Sales By Business
Segment
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six Months
Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Aviation
Services
|
$
532.0
|
$ 462.9
|
|
$
1,043.8
|
$ 901.3
|
Expeditionary
Services
|
28.9
|
30.4
|
|
58.6
|
58.3
|
|
$
560.9
|
$ 493.3
|
|
$
1,102.4
|
$ 959.6
|
|
|
|
|
|
|
|
|
Gross Profit by
Business Segment
(In millions-
unaudited)
|
Three Months
Ended
November
30,
|
|
Six Months
Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Aviation
Services
|
$
85.7
|
$ 74.9
|
|
$
165.7
|
$ 142.0
|
Expeditionary
Services
|
0.2
|
3.4
|
|
1.8
|
7.5
|
|
$
85.9
|
$ 78.3
|
|
$
167.5
|
$ 149.5
|
|
Adjusted income from continuing operations, adjusted diluted
earnings per share from continuing operations, adjusted selling,
general, and administrative expenses, adjusted cash used in
operating activities from continuing operations, adjusted EBITDA,
and net debt are "non-GAAP financial measures" as defined in
Regulation G of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). We believe these non-GAAP financial
measures are relevant and useful for investors as they provide a
better understanding of our actual operating performance unaffected
by the impact of certain items. When reviewed in conjunction
with our GAAP results and the accompanying reconciliations, we
believe these non-GAAP financial measures provide additional
information that is useful to gain an understanding of the factors
and trends affecting our business and provide a means by which to
compare our operating performance against that of other companies
in the industries we compete. These non-GAAP measures should
be considered as a supplement to, and not as a substitute for, or
superior to, the corresponding measures calculated in accordance
with GAAP. Adjusted EBITDA is income from continuing
operations before interest income (expense), other income
(expense), income taxes, depreciation and amortization, stock-based
compensation and other items of an unusual nature including but not
limited to severance, facility repositioning costs, investigation
and remediation compliance costs, and significant customer
bankruptcies. A reconciliation of forward-looking non-GAAP
financial measures to the most directly comparable GAAP financial
measure has not been provided because we are unable to predict with
reasonable certainty the potential amount or timing of severance,
investigation and remediation compliance costs, and other items and
their related tax effects without unreasonable effort.
Pursuant to the requirements of Regulation G of the Exchange
Act, we are providing the following tables that reconcile the above
mentioned non-GAAP financial measures to the most directly
comparable GAAP financial measures:
Adjusted Income
from Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six Months
Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Income from
continuing operations
|
$
20.1
|
$ 11.2
|
|
$
37.2
|
$ 30.1
|
Investigation and
remediation compliance costs, net of tax
|
1.8
|
0.2
|
|
4.2
|
0.2
|
Customer
bankruptcy charge, net of tax
|
––
|
9.6
|
|
––
|
9.6
|
Severance charges
(reversals), net of tax
|
0.7
|
––
|
|
1.2
|
(0.1)
|
Adjusted income
from continuing operations
|
$
22.6
|
$ 21.0
|
|
$
42.6
|
$ 39.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings per Share from
Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six
Months Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Diluted earnings
per share from continuing operations
|
$
0.57
|
$ 0.32
|
|
$
1.06
|
$ 0.85
|
Investigation and
remediation compliance costs, net of tax
|
0.05
|
0.01
|
|
0.12
|
0.01
|
Customer
bankruptcy charge, net of tax
|
––
|
0.27
|
|
––
|
0.27
|
Severance charges,
net of tax
|
0.02
|
––
|
|
0.03
|
––
|
Adjusted diluted
earnings per share from continuing operations
|
$
0.64
|
$ 0.60
|
|
$
1.21
|
$ 1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Selling,
General and Administrative Expenses
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six
Months Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Selling, general
and administrative expenses
|
$
57.1
|
$ 49.1
|
|
$
115.2
|
$ 97.3
|
Investigation and
remediation compliance costs
|
(2.4)
|
(0.2)
|
|
(5.2)
|
(0.2)
|
Severance charges
(reversals)
|
(0.9)
|
––
|
|
(1.7)
|
0.1
|
Stock-based
compensation
|
(2.8)
|
(1.2)
|
|
(7.1)
|
(5.2)
|
Adjusted selling,
general and administrative expenses
|
$
51.0
|
$ 47.7
|
|
$
101.2
|
$ 92.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Cash Provided by (Used in) Operating
Activities from Continuing
Operations
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six
Months Ended
November
30,
|
|
2019
|
2018
|
|
2019
|
2018
|
Cash provided by
(used in) operating activities from continuing operations
|
$
19.9
|
$
(8.3)
|
|
$
(10.1)
|
$
(41.2)
|
Amounts
outstanding on accounts receivable financing
program:
|
|
|
|
|
|
Beginning of
period
|
86.2
|
88.6
|
|
86.2
|
71.7
|
End of
period
|
(85.7)
|
(95.2)
|
|
(85.7)
|
(95.2)
|
Adjusted cash
provided by (used in) operating activities from continuing operations
|
$
20.4
|
$ (14.9)
|
|
$
(9.6)
|
$
(64.7)
|
Adjusted
EBITDA
(In millions -
unaudited)
|
Three Months
Ended
November
30,
|
|
Six Months
Ended
November
30,
|
|
Year Ended
May 31,
|
|
2019
|
2018
|
|
2019
|
2018
|
|
2019
|
Net
income
|
$
14.2
|
$
7.0
|
|
$
18.6
|
$
22.1
|
|
$
7.5
|
Loss from
discontinued operations
|
5.9
|
4.2
|
|
18.6
|
8.0
|
|
76.6
|
Income tax
expense
|
6.0
|
3.0
|
|
9.4
|
5.3
|
|
4.9
|
Other expense
(income), net
|
0.2
|
0.2
|
|
0.4
|
(0.2)
|
|
0.8
|
Interest expense,
net
|
1.8
|
2.4
|
|
3.9
|
4.0
|
|
8.5
|
Depreciation and
intangible amortization
|
11.0
|
10.4
|
|
21.8
|
20.5
|
|
42.8
|
Customer
bankruptcy charge
|
––
|
12.4
|
|
––
|
12.4
|
|
12.4
|
Investigation and
remediation costs
|
2.4
|
0.2
|
|
5.5
|
0.2
|
|
3.5
|
Severance charges
(reversals)
|
0.9
|
––
|
|
1.6
|
(0.1)
|
|
0.2
|
Facility
repositioning costs
|
––
|
––
|
|
––
|
––
|
|
0.9
|
Stock-based
compensation
|
2.8
|
1.2
|
|
7.1
|
5.2
|
|
13.5
|
Adjusted
EBITDA
|
$
45.2
|
$ 41.0
|
|
$
86.9
|
$ 77.4
|
|
$ 171.6
|
Net
Debt
(In millions-
unaudited)
|
November 30,
2019
|
|
November 30,
2018
|
Total
debt
|
$
198.3
|
|
$ 220.3
|
Less: Cash and
cash equivalents
|
(38.2)
|
|
(25.7)
|
Net
debt
|
$
160.1
|
|
$ 194.6
|
Net Debt to
Adjusted EBITDA
(In millions -
unaudited)
|
|
Adjusted EBITDA
for the year ended May 31, 2019
|
$
171.6
|
Less:
Adjusted EBITDA for the six months ended November 30,
2018
|
(77.4)
|
Plus:
Adjusted EBITDA for the six months ended November 30,
2019
|
86.9
|
Adjusted EBITDA
for the twelve months ended November 30, 2019
|
181.1
|
Net debt at
November 30, 2019
|
$
160.1
|
Net debt to
Adjusted EBITDA
|
0.88
|
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SOURCE AAR CORP.