AIR Beats Est, Rev Lags in 2Q13

Illinois-based aerospace/defense products and services supplier, AAR Corp. (AIR - Analyst Report) posted its fiscal second-quarter 2013 (ended November 30, 2012) financial results. The company reported earnings per share of 44 cents, up 2.3% compared with 43 cents earned in the year-ago quarter. It also surpassed the Zacks Consensus Estimate of 41 cents by 7.3%.

Revenue

In the fiscal second quarter of 2013, consolidated sales were $512.8 million, up 6.4% year over year. Sales were driven by healthy share gains in commercial aviation services. However, revenue fell short of the Zacks Consensus Estimate of $550.0 million.

During the second quarter of 2013, the company reclassified its revenue segments comprising Aviation Supply Chain, Government and Defense Services, Maintenance, Repair and Overhaul (MRO) and Structures and Systems to form two categories, namely; Aviation Services and Technology Products.

In the quarter, Aviation Services segment represented 76.2% of the revenue, standing at $390.8 million. The revenue denoted an increase of 3.7% from the year-ago comparable quarter revenue of $376.8 million.

Technology Products segment contributed 23.8% of the revenue in the quarter, corresponding to $122.0 million, up 16.0% year over year.

Margins

Cost of sales in the reported quarter spiked 5.5% year over year to $425.4 million and represented 83% of total revenue. Selling, general and administrative expense was $50.8 million, up 13.9% year over year.

The company's operating margin increased to 7.4% in the reported quarter from 7.1% in the year-ago comparable quarter.

Balance Sheet/Cash Flow

Exiting the fiscal second quarter 2013, AAR Corp's cash and cash equivalents were approximately $69.2 million, a hike of 2.2% compared with the previous quarter. Net property, plant and equipment were $373.1 million, flat compared to the sequential preceding quarter. Total debt balance stood at $778.9 million.

Cash flow from operations in the quarter was $27.1 million and capital spending was roughly $8.1 million. During the quarter, the company expended around $8.4 million to repurchase 620,000 shares and paid dividends totaling $3.0 million.

Guidance

Management revised its earnings per share guidance for fiscal 2013 to $1.70-$1.80 range compared with $1.60-$1.70 range expected earlier. However, the company maintains a revenue guidance of $2.1 billion to $2.2 billion.

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