AAR Corp. (AIR -3.5%) is experiencing a slight decline after reporting its Q1 (Aug) earnings last night. The company, which provides aviation services for commercial and defense aircraft, buys and sells airplane parts and offers airframe inspection, maintenance, and repair services.
- Reported its largest EPS beat since Q1 of last fiscal year.
- Revenue rose 20.4% year-over-year to $661.7 million, surpassing analyst expectations.
- Sales to both commercial and government customers increased 20% year-over-year, driven by the acquisition of the Product Support business and organic growth.
- Commercial customers accounted for 71% of total sales.
- Parts Supply, its largest and most profitable segment, saw sales rise 5.4% year-over-year to $249.7 million.
- New parts distribution within this segment grew 26% organically, driven by market share gains and strong commercial demand.
- AIR is the largest independent distributor of OEM parts, a key advantage that has helped it gain market share.
- Used serviceable material (USM) sales declined due to fewer available whole assets, primarily engines, stemming from delayed new aircraft deliveries.
- Repair & Engineering segment sales surged 58% year-over-year to $217.6 million.
- Excluding the Product Support acquisition, sales growth was 6%, driven by strong demand for MRO services.
- Despite hangars being nearly at capacity, AIR continues to grow within its existing footprint through increased efficiency and improved throughput.
- Hanger capacity expansions in Miami and Oklahoma City are on track for operation beginning in 2HCY25.
- Adjusted operating margins expanded to 9.1% from 7.3% a year ago, thanks to organic growth and recent acquisitions.
- AIR has consistently expanded its adjusted operating margin each quarter over the past three years and expects this trend to continue.
Overall, the report showed strong EPS and revenue growth along with margin expansion. AAR Corp. is benefiting from structural tailwinds, elevated air travel levels, and an aging fleet, which drives demand for its aftermarket services. The new parts segment is growing impressively, and demand for MRO services remains robust with additional capacity on the way. The dip in stock price may be due to most top-line growth coming from acquisitions and struggles in the used parts business due to fewer old plane retirements. Despite these concerns, the report had more positives than negatives.
