WOOD DALE, Ill., Sept. 25, 2019 /PRNewswire/ -- AAR CORP.
(NYSE: AIR) today reported first quarter Fiscal Year 2020
consolidated sales of $541.5 million
and income from continuing operations of $17.1 million, or $0.49 per diluted share. For the first
quarter of the prior year, the Company reported sales of
$466.3 million and income from
continuing operations of $18.9
million, or $0.54 per diluted
share. Our adjusted diluted earnings per share from
continuing operations were $0.57 in
the current quarter compared to $0.54
in the first quarter of the prior year.
Consolidated sales increased 16% over the prior year period from
continued growth in our programs and parts supply activities.
Our Aviation Services segment experienced significant growth of 17%
driven by improved performance in MRO, execution on new government
contract awards, and continued strong demand for both new and
aftermarket parts. In our Expeditionary Services segment,
sales increased 6% as volumes have increased from recent contract
awards.
"We are pleased with the strong start to Fiscal 2020 as our
momentum carried into the first quarter. We saw continued
strength in our parts supply activities, as well as in government
programs. We are also pleased with the positive impact our
efforts to attract and retain talent have had in our MRO
activities," said John M. Holmes,
President and Chief Executive Officer of AAR CORP.
During the quarter, we were awarded a new $118 million contract from the Naval Air Systems
Command in support of the U.S. Marine Corps for the procurement,
modification and delivery of two C-40 aircraft. This award
demonstrates the power of our integrated services model by
combining the strengths of our parts supply, government programs,
MRO and engineering teams to deliver a creative solution to the
U.S. Marine Corps. We began work on this contract in Q1 and
expect to deliver the aircraft in fiscal 2021.
Subsequent to the end of the quarter, we also announced two
contract awards related to our parts supply activities. We
were selected as the main distributor for Leach International
Corporation, a subsidiary of Transdigm, which will include
distributing electromechanical and solid state switch gears, such
as relays, switches, relay panels and power distribution units to
OEMs, commercial airlines and MRO providers, as well as to the
military aftermarket. We also announced a new agreement with
Mitsubishi Heavy Industries Aero Engines, Ltd. to supply PW4000
engine parts in support of their engine overhaul business.
This contract is our largest commercial agreement in Japan to date.
Sales to government and defense customers were 38% of
consolidated sales compared to 32% in the prior year's quarter
reflecting growth from the new C-40 contract award and other
government programs. First quarter sales to commercial
customers, which also increased during the period, represented 62%
of consolidated sales compared to 68% of consolidated sales in the
first quarter of last year.
Gross profit margins decreased slightly to 15.1% in the current
quarter from 15.3% in the prior year quarter due primarily to
Expeditionary Services profitability. Aviation Services gross
profit margins expanded from 15.3% to 15.6% primarily due to the
mix of products and services sold.
Selling, general and administrative expenses as a percentage of
sales were 10.7% for the quarter, compared to 10.3% last year
reflecting increased costs related to the investigation and
compliance matters disclosed earlier in the quarter. Selling,
general and administrative expenses as a percentage of sales were
10.1% excluding $3.6 million related
to these costs and severance.
Net interest expense for the quarter was $2.1 million compared to $1.6 million last year. Also during the
quarter, the Company paid cash dividends of $2.9 million, or $0.075 per share. Average diluted share
count for the quarter was 35.0 million compared to 35.1 million in
the first quarter last year.
Cash flow used in operating activities from continuing
operations was $30.1 million during
the current quarter. The level of our accounts receivable
financing program remained consistent with the fourth quarter
resulting in no favorable or unfavorable impact on our cash flows
during the quarter.
Holmes concluded, "We are very pleased with the recent C-40
award and other new contract wins and we remain well-positioned to
continue to secure new business across the commercial and
government markets. Demand for our aviation services offering
remains very strong and we are excited about the opportunities we
see for Fiscal 2020."
Outlook
We are re-affirming our financial guidance for Fiscal Year 2020,
which includes sales in the range of $2.1 to $2.2
billion and adjusted diluted earnings per share from
continuing operations of $2.45 to
$2.65. We continue to expect
selling, general and administrative expenses to be approximately
10.5% of sales and anticipate an effective tax rate of 24% in
Fiscal Year 2020.
Conference Call
Information
AAR will hold its quarterly conference call at 3:45 p.m. CDT on September
25, 2019. The conference call can be accessed by calling
866-802-4322 from inside the U.S. or 703-639-1319 from outside the
U.S. A replay of the conference call will also be available
by calling 855-859-2056 from inside the U.S. or 404-537-3406 from
outside the U.S. (access code 9886506). The replay will be
available from 7:15 p.m. CST on
September 25, 2019 until 10:59 p.m. CST on October
2, 2019.
About AAR
AAR is a global aftermarket solutions company that employs more
than 6,000 people in over 20 countries. Based in Wood Dale, Illinois, AAR supports commercial
aviation and government customers through two operating segments:
Aviation Services and Expeditionary Services. AAR's Aviation
Services include parts supply; OEM parts distribution; supply chain
programs; customer fleet management and operations; aircraft
maintenance, repair and overhaul; engineering services and
component repair. AAR's Expeditionary Services include
mobility systems; command and control centers in support of
military and humanitarian missions; and composite manufacturing
operations. Additional information can be found at
www.aarcorp.com.
This press release contains certain statements relating to
future results, which are forward-looking statements as that term
is defined in the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on beliefs
of Company management, as well as assumptions and estimates based
on information currently available to the Company, and are subject
to certain risks and uncertainties that could cause actual results
to differ materially from historical results or those anticipated,
including those factors discussed under Item 1A, entitled "Risk
Factors", included in the Company's Form 10-K for the fiscal year
ended May 31, 2019. Should one or
more of these risks or uncertainties materialize adversely, or
should underlying assumptions or estimates prove incorrect, actual
results may vary materially from those described. These
events and uncertainties are difficult or impossible to predict
accurately and many are beyond the Company's control. The
Company assumes no obligation to update any forward-looking
statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or
unanticipated events. For additional information, see the comments
included in AAR's filings with the Securities and Exchange
Commission.
AAR CORP. and
Subsidiaries
|
|
Consolidated
Statements of Income
(In millions
except per share data - unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
|
|
|
|
Sales
|
$541.5
|
|
$466.3
|
Cost and
expenses:
|
|
|
|
Cost of
sales
|
459.9
|
|
395.1
|
Provision for doubtful
accounts
|
0.7
|
|
0.6
|
Selling, general and
administrative
|
58.1
|
|
48.2
|
Operating
income
|
22.8
|
|
22.4
|
Interest expense,
net
|
(2.1)
|
|
(1.6)
|
Other income
(expense), net
|
(0.2)
|
|
0.4
|
Income from
continuing operations before income taxes
|
20.5
|
|
21.2
|
Income tax
expense
|
3.4
|
|
2.3
|
Income from
continuing operations
|
17.1
|
|
18.9
|
Loss from
discontinued operations
|
(12.7)
|
|
(3.8)
|
Net
income
|
$4.4
|
|
$15.1
|
|
|
|
|
Earnings per share
– Basic
|
|
|
|
Earnings from continuing
operations
|
$0.49
|
|
$0.54
|
Loss from discontinued
operations
|
(0.37)
|
|
(0.11)
|
Earnings per share –
Basic
|
$0.12
|
|
$0.43
|
|
|
|
|
Earnings per share
– Diluted
|
|
|
|
Earnings from continuing
operations
|
$0.49
|
|
$0.54
|
Loss from discontinued
operations
|
(0.36)
|
|
(0.11)
|
Earnings per share –
Diluted
|
$0.13
|
|
$0.43
|
|
|
|
|
Share
Data:
|
|
|
|
Weighted average
shares outstanding – Basic
|
34.7
|
|
34.6
|
Weighted average
shares outstanding – Diluted
|
35.0
|
|
35.1
|
|
|
|
|
AAR CORP. and
Subsidiaries
|
Consolidated
Balance Sheets
(In
millions)
|
August
31,
2019
|
|
May
31,
2019
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
39.9
|
|
$ 21.3
|
Restricted
cash
|
18.1
|
|
19.8
|
Accounts
receivable, net
|
197.3
|
|
197.8
|
Contract
assets
|
62.0
|
|
59.2
|
Inventories,
net
|
553.6
|
|
523.7
|
Rotable assets and
equipment on or available for lease
|
62.5
|
|
65.3
|
Assets of
discontinued operations
|
41.7
|
|
29.2
|
Other current
assets
|
46.5
|
|
36.2
|
Total current
assets
|
1,021.6
|
|
952.5
|
Property, plant,
and equipment, net
|
132.7
|
|
132.8
|
Operating lease
right-of-use assets, net
|
93.0
|
|
––
|
Goodwill and
intangible assets, net
|
128.8
|
|
138.4
|
Rotable assets
supporting long-term programs
|
225.2
|
|
216.0
|
Other non-current
assets
|
81.8
|
|
77.5
|
Total
assets
|
$
1,683.1
|
|
$ 1,517.2
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Accounts payable
and accrued liabilities
|
$
341.5
|
|
$ 328.3
|
Liabilities of
discontinued operations
|
54.9
|
|
29.2
|
Total current
liabilities
|
396.4
|
|
357.5
|
Long-term
debt
|
202.2
|
|
141.7
|
Operating lease
liabilities
|
74.7
|
|
––
|
Other liabilities
and deferred income
|
100.3
|
|
112.1
|
Total
liabilities
|
773.6
|
|
611.3
|
Equity
|
909.5
|
|
905.9
|
Total liabilities and
equity
|
$
1,683.1
|
|
$ 1,517.2
|
AAR CORP. and
Subsidiaries
|
|
Consolidated
Statements of Cash Flows
(In millions –
unaudited)
|
Three Months
Ended
August
31,
|
|
|
2019
|
|
2018
|
|
Cash flows used in
operating activities:
|
|
|
|
|
Net
income
|
$
4.4
|
|
$ 15.1
|
|
Less: Loss
from discontinued operations
|
12.7
|
|
3.8
|
|
Income from
continuing operations
|
17.1
|
|
18.9
|
|
Adjustments
to reconcile income from continuing operations to net
cash used in operating
activities
|
|
|
|
|
Depreciation and intangible amortization
|
10.8
|
|
10.1
|
|
Amortization of stock-based compensation
|
4.3
|
|
4.0
|
|
Provision for doubtful
accounts
|
0.7
|
|
0.6
|
|
Changes in certain assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(0.6)
|
|
(21.3)
|
|
Contract
assets
|
(2.7)
|
|
0.9
|
|
Inventories
|
(30.0)
|
|
(24.5)
|
|
Rotable assets
supporting long-term
programs
|
(13.8)
|
|
(7.9)
|
|
Accounts payable
and accrued liabilities
|
5.0
|
|
(24.5)
|
|
Other
|
(20.9)
|
|
10.8
|
|
Net cash
used in operating activities – continuing operations
|
(30.1)
|
|
(32.9)
|
|
Net cash
provided from (used in) operating activities – discontinued
operations
|
(2.3)
|
|
5.9
|
|
Net cash
used in operating activities
|
(32.4)
|
|
(27.0)
|
|
|
|
|
|
|
Cash flows used in
investing activities:
|
|
|
|
|
Property,
plant and equipment expenditures
|
(4.5)
|
|
(4.2)
|
|
Other
|
1.0
|
|
(0.5)
|
|
Net cash
used in investing activities – continuing operations
|
(3.5)
|
|
(4.7)
|
|
Net cash
used in investing activities – discontinued
operations
|
––
|
|
(0.3)
|
|
Net cash
used in investing activities
|
(3.5)
|
|
(5.0)
|
|
|
|
|
|
|
Cash flows
provided from financing activities:
|
|
|
|
|
Proceeds
from borrowings,
net
|
60.0
|
|
32.0
|
|
Cash
dividends
|
(2.9)
|
|
(2.7)
|
|
Other
|
(4.3)
|
|
6.5
|
|
Net cash provided
from financing activities – continuing operations
|
52.8
|
|
35.8
|
|
Net cash used in
financing activities – discontinued
operations
|
––
|
|
(0.5)
|
|
Net cash provided
from financing
activities
|
52.8
|
|
35.3
|
|
Effect of exchange
rate changes on
cash
|
––
|
|
(0.1)
|
|
Increase in cash
and cash
equivalents
|
16.9
|
|
3.2
|
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
41.1
|
|
41.6
|
|
Cash, cash
equivalents, and restricted cash at end of
period
|
$
58.0
|
|
$ 44.8
|
|
Sales By Business
Segment
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Aviation
Services
|
$511.8
|
|
$438.4
|
Expeditionary
Services
|
29.7
|
|
27.9
|
|
$541.5
|
|
$466.3
|
Gross Profit by
Business Segment
(In millions-
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Aviation
Services
|
$80.0
|
|
$67.1
|
Expeditionary
Services
|
1.6
|
|
4.1
|
|
$81.6
|
|
$71.2
|
Adjusted income from continuing operations, adjusted diluted
earnings per share from continuing operations, adjusted selling,
general, and administrative expenses, adjusted cash used in
operating activities from continuing operations, adjusted EBITDA,
and net debt are "non-GAAP financial measures" as defined in
Regulation G of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). We believe these non-GAAP financial
measures are relevant and useful for investors as they provide a
better understanding of our actual operating performance unaffected
by the impact of certain items. When reviewed in conjunction
with our GAAP results and the accompanying reconciliations, we
believe these non-GAAP financial measures provide additional
information that is useful to gain an understanding of the factors
and trends affecting our business and provide a means by which to
compare our operating performance against that of other companies
in the industries we compete. These non-GAAP measures should
be considered as a supplement to, and not as a substitute for, or
superior to, the corresponding measures calculated in accordance
with GAAP. Adjusted EBITDA is income from continuing
operations before interest income (expense), other income
(expense), income taxes, depreciation and amortization, stock-based
compensation and other items of an unusual nature including but not
limited to severance, facility repositioning costs, investigation
and remediation compliance costs, and significant customer
bankruptcies.
Pursuant to the requirements of Regulation G of the Exchange
Act, we are providing the following tables that reconcile the above
mentioned non-GAAP financial measures to the most directly
comparable GAAP financial measures:
Adjusted Income
from Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Income from
continuing operations
|
$17.1
|
|
$18.9
|
Investigation and
remediation compliance costs, net of tax
|
2.4
|
|
––
|
Severance and
restructuring charges (reversals), net of tax
|
0.5
|
|
(0.1)
|
Adjusted income
from continuing operations
|
$20.0
|
|
$18.8
|
Adjusted Diluted
Earnings per Share from Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Diluted earnings
per share from continuing operations
|
$0.49
|
|
$0.54
|
Investigation and
remediation compliance costs, net of tax
|
0.07
|
|
––
|
Severance and
restructuring charges, net of tax
|
0.01
|
|
––
|
Adjusted diluted
earnings per share from continuing operations
|
$0.57
|
|
$0.54
|
Adjusted Selling,
General and Administrative Expenses
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Selling, general
and administrative expenses
|
$58.1
|
|
$48.2
|
Investigation and
remediation compliance costs
|
(2.8)
|
|
––
|
Severance and
restructuring (charges) reversals
|
(0.8)
|
|
0.1
|
Stock-based
compensation
|
(4.3)
|
|
(4.0)
|
Adjusted selling,
general and administrative expenses
|
$50.2
|
|
$44.3
|
Adjusted Cash Used
in Operating Activities From Continuing Operations
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Cash used in
operating activities from continuing operations
|
$(30.1)
|
|
$(32.9)
|
Amounts
outstanding on accounts receivable financing
program:
|
|
|
|
Beginning of
period
|
86.2
|
|
71.7
|
End of
period
|
(86.2)
|
|
(88.6)
|
Adjusted cash used
in operating activities from continuing operations
|
$(30.1)
|
|
$(49.8)
|
Adjusted
EBITDA
(In millions -
unaudited)
|
Three Months
Ended
August
31,
|
|
2019
|
|
2018
|
Net
income
|
$4.4
|
|
$15.1
|
Loss from
discontinued operations
|
12.7
|
|
3.8
|
Income tax
expense
|
3.4
|
|
2.3
|
Other income
(expense), net
|
0.2
|
|
(0.4)
|
Interest expense,
net
|
2.1
|
|
1.6
|
Depreciation and
intangible amortization
|
10.8
|
|
10.1
|
Investigation and
remediation compliance costs
|
3.1
|
|
––
|
Severance and
restructuring charges (reversals)
|
0.7
|
|
(0.1)
|
Stock-based
compensation
|
4.3
|
|
4.0
|
Adjusted
EBITDA
|
$41.7
|
|
$36.4
|
Net
Debt
(In millions-
unaudited)
|
August 31,
2019
|
|
August 31,
2018
|
Total
debt
|
$203.3
|
|
$210.7
|
Less: Cash and
cash equivalents
|
(39.9)
|
|
(22.7)
|
Net
debt
|
$163.4
|
|
$188.0
|
Net Debt to
Adjusted EBITDA
(In millions -
unaudited)
|
|
Adjusted EBITDA
for the year ended May 31, 2019
|
$
168.1
|
Less:
Adjusted EBITDA for the three months ended August 31,
2018
|
(36.4)
|
Plus:
Adjusted EBITDA for the three months ended August 31,
2019
|
41.7
|
Adjusted EBITDA
for the twelve months ended August 31, 2019
|
173.4
|
Net debt at August
31, 2019
|
$
163.4
|
Net debt to
Adjusted EBITDA
|
0.94
|
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SOURCE AAR CORP.