EPS of $-0.25 decreased by 162.5% from previous year
Gross margin of 19.4%
Net income of -8.90M
"*"...we reduced our net debt leverage to 3.06 times from 3.17 times in the prior quarter. Our strong balance sheet has us well positioned for investments that will continue to drive growth."*" - John Holmes
In Q3 2025, AAR Corp reported a record revenue of $678 million and an impressive year-over-year growth of 20%, driven by robust demand in both commercial and government sectors. Adjusted EBITDA surged by 39% to reach $81.2 million, reflecting successful margin improvements from enhanced operational efficiency and strategic acquisitions. However, net income remains in the negative, at $8.9 million, primarily due to increased interest expenses and temporary declines in specific business lines. Management remains optimistic about continued demand growth into FY 2026 and is strategically focusing on operational efficiencies to sustain margin expansion.
- Revenue: $678 million, +20% YoY, -1% QoQ
- Gross Profit: $131.7 million, 19.4% margin
- Adjusted EBITDA: $81.2 million, 12% margin, +39% YoY
- Net Income: -$8.9 million, -$11 million YoY
- EPS: -$0.25
- Net Debt Leverage: 3.06x, down from 3.17x.
The solid results highlight AAR Corp’s effective growth strategies in Parts Supply and Repair & Engineering, yet the net loss raises flags regarding sustainability amid rising costs.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
678.20M
19.55%
-1.15%
Gross Profit
131.70M
19.40%
2.41%
Operating Income
71.10M
115.45%
3 191.30%
Net Income
-8.90M
-163.57%
70.92%
EPS
-0.25
-162.50%
50.98%
Key Financial Ratios
currentRatio
2.82
grossProfitMargin
19.4%
operatingProfitMargin
10.5%
netProfitMargin
-1.31%
returnOnAssets
-0.31%
returnOnEquity
-0.75%
debtEquityRatio
0.92
operatingCashFlowPerShare
$-0.53
freeCashFlowPerShare
$-0.77
priceToBookRatio
1.95
priceEarningsRatio
-64.65
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Demand Strength: "We continue to benefit from a strong demand environment in both our commercial and government end markets, which we anticipate will continue through calendar year 2025." - John Holmes.
Growth Strategies: "Our third quarter sales of $678 million improved 20% year-over-year... we saw continued strength across our business segments... sales to commercial customers increased 22% while sales to government customers increased 15%." - John Holmes.
Margin Improvement: "Adjusted EBITDA of $81.2 million was higher by 39%... EBITDA margin increased to 12% this year from 10.3% in the third quarter of last year... driven by strong performance in our new parts Distribution activities and our Airframe MRO operations." - John Holmes.
*"...we reduced our net debt leverage to 3.06 times from 3.17 times in the prior quarter. Our strong balance sheet has us well positioned for investments that will continue to drive growth."*
— John Holmes
*"Our strong performance in new parts Distribution, Airframe MRO and Trax led to better-than-expected operating margins and our integration of Product Support is on schedule."*
— John Holmes
Forward Guidance
For Q4 FY 2025, AAR Corp expects year-over-year sales growth in the mid-single digits. Management projects adjusted operating margins of approximately 9.7% to 9.9%, and a net interest expense of around $18 million, consistent with Q3. The company anticipates strong demand signals continuing through 2025, creating potential for further revenue and margin growth. Monitoring the integration of recent acquisitions and market demand will be critical.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AIR Focus
19.42%
10.50%
-0.75%
-64.65%
CW
37.30%
18.10%
4.46%
28.24%
HXL
23.30%
11.50%
2.50%
31.65%
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
Investors should maintain a cautiously optimistic stance on AAR Corp, given its strong market positioning and improved margins. However, close attention should be paid to quarterly performance as ongoing net income challenges and the need for consistent demand recovery will dictate future growth. AAR's strategic moves in enhancing operational capacities and expanding partnerships should ultimately lead to favorable outcomes, aligning well with the anticipated growth trajectory in the aerospace and defense industry.
Key Investment Factors
Growth Potential
AAR stands to benefit from ongoing strong demand in its commercial and government sectors, particularly in Parts Supply and Repair & Engineering, while capturing new business through strategic partnerships and expanding service offerings.
Profitability Risk
AAR faces risks related to potential declines in airline capacity, market volatility, cost inflation, and execution risks associated with integration of acquisitions and operational efficiencies.
Financial Position
The company has a robust balance sheet with manageable net debt leverage of 3.06x, lower than prior quarters. However, negative net income signals caution regarding profitability amid rising costs.
SWOT Analysis
Strengths
Strong revenue growth of 20% YoY
Improved margins through operational efficiencies
Diverse business segments including Parts Supply and Repair & Engineering
Robust demand for aftermarket services in commercial and government sectors
Weaknesses
Current negative net income is concerning
Heavy reliance on government contracts and aviation market stability
Integration risks with recent acquisitions could impact performance in the short term
Opportunities
Expansion of exclusive distribution contracts like those with Unison and Chromalloy
Growing demand for USM parts and services
Investment opportunities through potential acquisitions and capitalizing on falling market prices
Threats
Potential airline capacity reductions affecting business volume
Economic uncertainties and inflation impacting costs
Increased competition in the aerospace and defense sector
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