AAR reports record fourth quarter and fiscal year 2024 results

AAR CORP. (NYSE: AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, recently reported fourth quarter fiscal year 2024 consolidated sales of $656.5 million and income from continuing operations of $9.1 million, or $0.26 per diluted share. For the fourth quarter of the prior year, the Company reported sales of $553.3 million and income from continuing operations of $23.2 million, or $0.66 per diluted share. Our adjusted diluted earnings per share from continuing operations in the fourth quarter of fiscal year 2024 were $0.88, compared to $0.83 in the fourth quarter of the prior year.

Consolidated fourth quarter sales increased 19% over the prior year quarter. Our consolidated sales to commercial customers increased 20% over the prior year quarter, primarily due to the acquisition of the Product Support business and strong demand for our new parts distribution activities.  Our sales to government customers increased 15% primarily due to increased order volume for our new parts distribution activities and improved performance across our government program activities. Sales to commercial customers were 70% of consolidated sales, compared to 69% in the prior year quarter.

“We delivered another record quarter driven by both record performance in our new parts distribution activities and the Triumph Product Support acquisition, which exceeded our expectations during the period. We also continued to drive growth in our heavy maintenance hangars out of our existing footprint. In addition to this record performance in our commercial business, we saw double-digit growth in our government business,” said John M. Holmes, Chairman, President and Chief Executive Officer of AAR CORP.

Gross profit margin decreased from 19.5% in the prior year quarter  to 19.4% in the current quarter, primarily due to a commercial programs PBH agreement that was terminated during the quarter.  This was partially offset by the favorable margin contribution from the recently acquired Product Support business.

Selling, general, and administrative expenses were $94.8 million in the current quarter, which included $17.5 million related to acquisition and amortization expenses and $4.8 million related to investigation costs.

Operating margins were 5.0% in the current quarter, compared to 6.6% in the prior year quarter. Adjusted operating margin increased from 7.8% in the prior year quarter to 9.3% in the current year quarter. Sequentially, our adjusted operating margin increased from 8.3% to 9.3%.  The improved adjusted margins are primarily driven by the favorable contribution from the recently acquired Product Support business.

During and subsequent to the quarter, we announced multiple new contract awards, including:

• New multi-year distribution agreement with Triumph to supply its actuation product line to commercial airlines and MROs
• Multi-year contract extension and expansion with Sumitomo Precision Products to distribute its V2500 starter and valve components
• Expansion of our agreement with OTTO Engineering to distribute electromechanical switches, grips, and joysticks to the commercial and defense markets

Net interest expense for the quarter was $18.7 million, compared to $4.7 million last year. Average diluted share count increased from 34.8 million shares in the prior year quarter to 35.4 million shares in the current year quarter. We did not repurchase any shares during the quarter as a result of deploying capital towards the acquisition of the Product Support business and other attractive investment opportunities. We have $52.5 million remaining on our $150 million share repurchase program. From a capital deployment perspective, we are prioritizing debt repayment but will evaluate share repurchases along with other attractive investment opportunities to deploy our capital.

Cash flow provided by operating activities from continuing operations was $24.5 million during the current quarter. As of May 31, 2024, our net debt was $911.2 million and our net leverage, pro forma for the last twelve months adjusted EBITDA of the Product Support business, was 3.30x.

Holmes continued, “This was our 13^th consecutive quarter of adjusted operating margin improvement, which was supported by both organic growth and our acquisition of the Product Support business. Margin expansion remains a top priority for our team and we expect continued incremental margin improvement. Additionally, we reduced our net leverage by approximately 0.3x in just one quarter since the closing of the Product Support acquisition.”

Fiscal year 2024 results

Full fiscal year 2024 consolidated sales were $2.3 billion, an increase of 17% from fiscal year 2023 with growth resulting from our Parts Supply offerings and increased volumes in our commercial programs activities.

Operating margins were 5.6% for the full year, compared to 6.7% in fiscal year 2023. Adjusted operating margin increased from 7.5% in fiscal year 2023 to 8.3% in fiscal year 2024, which reflects only one quarter of ownership of the higher margin Product Support business.

Full fiscal year 2024 income from continuing operations was $46.3 million, or $1.29 per diluted share. In fiscal year 2023, income from continuing operations was $89.8 million, or $2.52 per share. Our adjusted diluted earnings per share from continuing operations was $3.33 in the current year, compared to $2.86 last year, reflecting the impact of our improved operating efficiency on higher sales volumes.

Sales to commercial customers were 71% of consolidated sales, compared to 67% in the prior year. Cash flow provided by operating activities from continuing operations was $43.8 million in fiscal year 2024. Excluding our accounts receivable financing program, our cash flow provided by operating activities from continuing operations was $42.9 million in fiscal year 2024.

Holmes concluded, “We made tremendous progress in fiscal 2024 executing on the strategic vision and targets that we outlined at our Investor Day last year. We continued to extend our leadership position in Parts Supply, broke ground on airframe maintenance expansions that will add 15% more capacity to our hangar network, integrated Trax, acquired Product Support, and increased our margins. We believe demand will remain robust as the life and high utilization of current generation aircraft continue to extend, which we expect will lead to another year of sales and earnings growth as we leverage our stronger market position.”