EPS of $0.39 decreased by 36.5% from previous year
Gross margin of 19.4%
Net income of 14.00M
"John Holmes: 'We delivered another strong quarter. Sales were up 9% year-over-year from $521 million to a third quarter record of $567 million.'" - John Holmes
In Q3 2024, AAR Corp achieved record revenues of $567 million, representing a substantial year-over-year increase of 9% from $521 million in Q3 2023. This performance is attributed to robust growth in commercial sales—up 18%—which more than compensated for a 7% decline in government sales. Management is optimistic about the integration of the recently acquired Triumph Product Support business, which is expected to bolster the Repair & Engineering segment and enhance profitability through strategic operational efficiencies. The company's continued investment in growth areas and competitive positioning appears set to deliver further improvements in revenue and margins moving forward.
Key Performance Indicators
Revenue
567.30M
QoQ: 4.02% | YoY:8.87%
Gross Profit
110.30M
19.44% margin
QoQ: 6.67% | YoY:16.97%
Operating Income
33.00M
QoQ: -13.84% | YoY:-2.94%
Net Income
14.00M
QoQ: -41.18% | YoY:-35.78%
EPS
0.40
QoQ: -40.30% | YoY:-36.51%
Revenue Trend
Margin Analysis
Key Insights
to high-teens revenue growth for Q4 2024, including approximately $65-$70 million from the recent acquisition, projecting adjusted operating margins to reach about 9%.
Financial Highlights
Financial Metrics:
Revenue: $567 million, YoY Growth: 9%, QoQ Growth: 4.2% Gross Profit: $110.3 million, Gross Profit Margin: 19.4% Operating Income: $33 million, Operating Margin: 5.8% Net Income: $14 million, Net Margin: 2.5% EPS: $0.40, Diluted EPS: $0.39 Cash Flow from Operations: $20 million, Free Cash Flow: $13 million. Balance Sheet Strength: Total Assets: $2.0218 billion, Total Liabilities: $853.8 million, Total Equity: $1.168 billion Debt-to-Equity Ratio: 0.298 Net Leverage Ratio: 0.95 times adjusted EBITDA, indicating strong balance sheet health despite acquisition financing through new debt. Forward Guidance: Management anticipates mid- to high-teens revenue growth for Q4 2024, including approximately $65-$70 million from the recent acquisition, projecting adjusted operating margins to reach about 9%.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
567.30M
8.87%
4.02%
Gross Profit
110.30M
16.97%
6.67%
Operating Income
33.00M
-2.94%
-13.84%
Net Income
14.00M
-35.78%
-41.18%
EPS
0.40
-36.51%
-40.30%
Key Financial Ratios
currentRatio
2.9
grossProfitMargin
19.4%
operatingProfitMargin
7.51%
netProfitMargin
2.47%
returnOnAssets
0.69%
returnOnEquity
1.2%
debtEquityRatio
0.3
operatingCashFlowPerShare
$0.56
freeCashFlowPerShare
$0.4
priceToBookRatio
1.99
priceEarningsRatio
41.5
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Strategic Initiatives:
- Commercial Distribution Performance: CEO John Holmes noted an exceptional quarter in commercial distribution, achieving 27% organic growth. Management emphasized the strength of their sourcing team and the ability to quickly capitalize on acquisitions despite market constraints for larger assets.
- Government Sector: There is a cautious optimism about future government sales, with increasing bookings hinting at a potential turnaround in the upcoming quarters, although Q3 saw a decline from prior benchmarks.
- Profitability Insights: Adjusted operating margins continuously improved to 8.3%, up from 7.6% a year prior, marking the 12th consecutive quarter of expansion—indicative of AAR's effective management during inflationary pressures.
- Acquisition Synergies: CFO Sean Gillen outlined plans for achieving $10 million of run-rate synergies from the Triumph acquisition, asserting pro forma net leverage post-acquisition is expected to stabilize as cash flows improve.
John Holmes: 'We delivered another strong quarter. Sales were up 9% year-over-year from $521 million to a third quarter record of $567 million.'
— John Holmes
Sean Gillen: 'Our adjusted operating margin was 8.3%, up from 7.6% in the prior year quarter, driven by margin expansion in Parts Supply and Repair & Engineering.'
— Sean Gillen
Forward Guidance
Looking ahead, AAR's management maintains a bullish outlook, projecting revenue growth in the mid- to high-teens for Q4 2024. This growth is expected to include a significant contribution from the Triumph acquisition. Management reiterated confidence in the strong demand for parts and services, particularly in the commercial aviation market, along with anticipated improvements in government sector sales as backlog orders pick up from the Department of Defense. Investors should monitor continuing upward trends in operating margins as AAR seeks to enhance its profitability through strategic integration and operational efficiencies.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AIR Focus
19.44%
7.51%
1.20%
41.50%
CW
38.90%
18.30%
4.43%
19.35%
HXL
21.80%
10.40%
2.35%
35.60%
KAMN
35.30%
6.49%
0.22%
94.65%
MOG-A
25.50%
10.90%
3.14%
23.72%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
AAR Corp presents a compelling investment opportunity, primarily due to its strategic acquisitions that enhance service capabilities and market presence. Despite macroeconomic challenges and a volatile government market segment, the company's focus on high-margin commercial aviation services alongside strong cash flow generation underpins its growth strategy. Investors are encouraged to consider the potential upside associated with increasing commercial sales and improving profit margins as operational efficiencies take effect due to the company's strategic initiatives.
Key Investment Factors
Growth Potential
AAR is poised for strong growth driven by strong commercial aviation demand and emerging opportunities in Asian markets due to the Triumph acquisition.
Profitability Risk
Reliance on government contracts poses a risk, particularly with current declines in government sales; potential macroeconomic factors could affect demand for services.
Financial Position
AAR's balance sheet remains robust, with a comfortable debt-to-equity ratio and near-term cash generation supporting ongoing strategic investments.
SWOT Analysis
Strengths
Diverse service offerings across commercial and government sectors
Strong margins and consistent profitability growth
Effective integration of acquired companies enhancing operational capacity
Weaknesses
Dependence on government contracts leading to revenue volatility
Market competition impacting pricing power
Opportunities
Expansion in Asian markets leveraging recent acquisitions
Investment in technology and capabilities to capture more service contracts
Forecasted growth in aviation markets increasing demand for parts and services
Threats
Economic downturns impacting investment in aviation
Geopolitical risks affecting international contracts
Competition leading to pricing pressure especially in the defense sector
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