EPS of $-0.51 decreased by 176.1% from previous year
Gross margin of 18.7%
Net income of -30.60M
""Our second quarter sales of $686 million improved 26% from the same quarter last year... We are very proud of the performance we delivered this past quarter."" - John Holmes
AAR Corp (Ticker: AIR) delivered robust financial performance in Q2 2025, with revenue soaring to $686 million, representing a 26% increase year-over-year. This growth showcases strong demand across both the commercial and government sectors, aided by a healthy aerospace aftermarket. The company's adjusted earnings per share reached $0.90, a testament to effective margin management and operational efficiencies. However, AAR's net income recorded a loss of $30.6 million due to large expenditures, including a significant FCPA-related settlement, necessitating close attention from investors on expense management moving forward. Management expresses optimism for fiscal year 2025 driven by continued growth in aftermarket services and strategic business acquisitions.
Key Performance Indicators
Revenue
686.10M
QoQ: 3.69% | YoY:25.80%
Gross Profit
128.60M
18.74% margin
QoQ: 9.73% | YoY:24.37%
Operating Income
-2.30M
QoQ: -105.30% | YoY:-106.01%
Net Income
-30.60M
QoQ: -270.00% | YoY:-228.57%
EPS
-0.51
QoQ: -200.00% | YoY:-176.12%
Revenue Trend
Margin Analysis
Key Insights
**Revenue**: $686 million (up 26% YoY)
**Gross Profit**: $128.6 million (up 24% YoY, gross margin 18.74%)
**Operating Income**: -$2.3 million (down 106% YoY)
**Net Income**: -$30.6 million (down 229% YoY)
**Adjusted EBITDA**: $78.3 million (up 42% YoY)
Financial Highlights
### Financial Performance Metrics
- Revenue: $686 million (up 26% YoY)
- Gross Profit: $128.6 million (up 24% YoY, gross margin 18.74%)
- Operating Income: -$2.3 million (down 106% YoY)
- Net Income: -$30.6 million (down 229% YoY)
- Adjusted EBITDA: $78.3 million (up 42% YoY)
- EBITDA Margin: 11.4% (improved from 10.1% YoY)
- EPS: -$0.51 (compared to $0.40 previous year)
#### Comparison
AAR’s performance reflects acceleration in growth rates compared to the previous quarter, moving from 6% to 12% organic sales growth quarter-over-quarter, supported by a favorable environment for repair, maintenance, and parts supply services.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
686.10M
25.80%
3.69%
Gross Profit
128.60M
24.37%
9.73%
Operating Income
-2.30M
-106.01%
-105.30%
Net Income
-30.60M
-228.57%
-270.00%
EPS
-0.51
-176.12%
-200.00%
Key Financial Ratios
currentRatio
2.68
grossProfitMargin
18.7%
operatingProfitMargin
-0.34%
netProfitMargin
-4.46%
returnOnAssets
-1.07%
returnOnEquity
-2.59%
debtEquityRatio
0.9
operatingCashFlowPerShare
$0.63
freeCashFlowPerShare
$0.85
priceToBookRatio
2.07
priceEarningsRatio
-19.99
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Insights
- John Holmes (CEO): "Our second quarter sales of $686 million improved 26% from the same quarter last year... We are excited for the remainder of fiscal year 2025 and beyond."
- Sean Gillan (CFO): "Net debt leverage improved from 3.3 times to 3.17 times during the quarter; we expect further improvement towards 2 times over the next two years."
- AAR's solid performance is underpinned by its diversified service offerings, including parts supply and integrated solutions, reflecting strong demand from both sectors.
### Strategic Activities
The resolution with the Department of Justice concerning the Foreign Corrupt Practices Act (total settlement of $55.6 million) was a significant development, influencing cash flows considerably this quarter. Furthermore, AAR announced a definitive agreement to divest its landing gear overhaul business to align its resources toward high-growth sectors such as aftermarket services, expected to enhance margins and operational performance once finalized.
"Our second quarter sales of $686 million improved 26% from the same quarter last year... We are very proud of the performance we delivered this past quarter."
— John Holmes
"Net debt leverage improved from 3.3 times to 3.17 times during the quarter and we expect this to continue reducing, aiming toward 2 times net leverage in two years."
— Sean Gillan
Forward Guidance
Management indicates strong confidence moving into fiscal Q3 2025, projecting sales growth between 22% – 25% and an adjusted operating margin range between 9.2% to 9.4%. Additionally, upcoming expansions in hangar capacity and synergies from the product support acquisition will materially contribute to improved profitability. Therefore, investors should focus on:
- Tracking market demand for aerospace and defense products
- The timely realization of integration synergies from strategic acquisitions amid a changing competitive landscape.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AIR Focus
18.74%
-0.34%
-2.59%
-19.99%
CW
36.20%
16.80%
4.05%
26.08%
HXL
25.00%
14.10%
3.18%
25.78%
KAMN
37.00%
9.00%
0.77%
32.64%
MOG-A
27.40%
10.50%
3.04%
24.30%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Given the strategic repositioning of AAR in the aerospace defense sectors and the solid financial metrics displayed in Q2 2025, the outlook remains cautiously optimistic. Investors should keep an eye on the company’s ability to manage its operational costs alongside the anticipated growth from recent acquisitions and contracts. The divestiture of lower-margin business segments might streamline operations, allowing AAR to focus on higher-margin activities. With robust expectations for continued growth amidst favorable market conditions, maintaining AAR in the investment portfolio could yield positive returns in the coming quarters.
Key Investment Factors
Growth Potential
Aar Corp is poised for growth, particularly in its Aftermarket Services segment due to rising air travel demand and the aging aircraft fleet, coupled with the expansion of government contracts.
Profitability Risk
Key risks include operational challenges during the divestiture and integration processes, regulatory scrutiny related to past compliance issues, and potential volatility in aviation sector demand.
Financial Position
AAR's balance sheet is robust, with significant liquidity post-recent cash inflow, although ongoing monitoring will be needed as leverage decreases.
SWOT Analysis
Strengths
Strong demand in aftermarket and aerospace sectors
Diverse service offerings aiding resilience
Strategic partnerships enhancing market position
Weaknesses
Recent operating loss due to elevated costs
Dependence on government contracts can be volatile
Ongoing integration challenges from acquisitions
Opportunities
Increasing air travel spurring parts supply and MRO growth
Potential for margin improvement through operational efficiencies and business divestitures
Government contracts presenting lucrative growth channels
Threats
Regulatory risks stemming from compliance history
Market competition, particularly in aerospace supply chain
Economic downturns impacting discretionary spending in aviation
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