AAR 1Q Lags Est., Ups Y/Y

Illinois-based aerospace/defense products and services supplier, AAR Corp. ( AIR - Analyst Report ) posted its fiscal first-quarter 2013 (ended August 31, 2012) financial results. The company reported earnings per share, excluding special items, of 45 cents, up 9.8% compared with 41 cents earned in the year-ago quarter.

Result was at the high-end of management’s guided range of 42-45 cents; however, it lagged behind the Zacks Consensus Estimate of 46 cents.

Revenue

In fiscal first quarter 2013, consolidated sales were $550.5 million, up 13.4% year over year and above management’s guided range of $540-$550 million. Sales were driven by healthy share gains in commercial aviation services.

Revenue from the Aviation Supply Chain business (27.0% of total revenue) was $148.7 million, down 7.7% year over year. Government and Defense Services revenue (27.4%) of approximately $150.6 million was roughly flat year over year.

Maintenance, Repair and Overhaul (MRO) segment, which accounted for roughly 19.2% of total revenue, generated $105.5 million, up 13.2% year over year. Structures and Systems revenue was $145.7 million (26.5% of total revenue), up 79.4% year over year.

Margins

Cost of sales in the reported quarter spiked 12.3% year over year to $460.2 million. Selling, general and administrative expense was $53.3 million, up 23.7% year over year.

The company's operating margin increased to 7.0% in the reported quarter from 6.8% in the year-ago comparable quarter.

Balance Sheet/Cash Flow

Exiting the fiscal first quarter 2013, AAR Corp's cash and cash equivalents were approximately $67.7 million, flat compared with the previous quarter. Net property, plant and equipment were $374.3 million, down $8.6 million in the sequentially preceding quarter. Total debt balance stood at $787.6 million.

Cash flow from operations in the quarter was $33 million and capital spending was roughly $11 million. During the quarter, the company expended roughly $6.1 million to repurchase 475,000 shares and paid dividends totaling $3.0 million.

Guidance

Management revised its earnings per share guidance for fiscal 2013 to $1.60-$1.70 range compared with $1.55-$1.65 range expected earlier.

Currently, AIR has a Zacks #1 Rank, which translates into a short-term (1-3 months) Strong Buy rating. The company’s prime competitor Boeing Co ( BA - Analyst Report ) has Zacks #3 (Hold) rating while Lockheed Martin Corporation ( LMT - Analyst Report ) has Zacks #2 (Buy) rating.