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Why Is AAR (AIR) Down 6.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for AAR (AIR - Free Report) . Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AAR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AAR Corp Earnings Beat, Sales Miss Estimates in Q2

AAR Corpreported second-quarter fiscal 2019 adjusted earnings of 59 cents per share, which surpassed the Zacks Consensus Estimate of 57 cents by 3.5%. The adjusted figure reflected a year-over-year improvement of 51% from 39 cents registered in the year-ago quarter.

Notably, solid improvement in sales led to bottom-line growth on a year-over-year basis.

Excluding one-time items, the company reported earnings of 32 cents from continuing operations compared with 38 cents in second-quarter fiscal 2018.

Total Sales

In the reported quarter, net sales of $493.3 million missed the Zacks Consensus Estimate of $502 million by 1.8%. However, the top line increased 17.3% from $420.6 million registered in the year-ago quarter.

The year-over-year improvement in sales was driven by continued growth in the company’s trading, distribution and programs activities.

Segment Details    

In the fiscal second quarter, sales from the Aviation Services segment summed $462.9 million, up 18.2% year over year.

Expeditionary Services garnered sales of $30.4 million, up 5.2% from $28.9 million in the year-ago quarter.

Highlights of the Release

AAR Corp’s cost of sales in the reported quarter increased 18.6% year over year to $415 million.

Selling, general and administrative expenses inched up 0.6% to $49.1 million.

The company incurred interest expenses of $2.4 million compared with $1.8 million in second-quarter fiscal 2018.

Financial Condition

As of Nov 30, 2018, AAR Corp’s cash and cash equivalents amounted to $25.7 million compared with $31.1 million as of May 31, 2018.

As of Nov 30, 2018, net property, plant and equipment expenses were $133.4 million compared with $133.2 million as of May 31, 2018.

As of Nov 30, 2018, total debt increased to $220.3 million from $178.9 million as of May 31, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, AAR has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise AAR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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