AAR Reports Record Fiscal Year 2007 Second Quarter Results
- Record quarterly net income of $13.8 million
- 13% sales growth; 75% income growth
- Operating margin increased to 9.5%
- Significant new business wins
WOOD DALE, Ill., /PRNewswire-FirstCall/ -- AAR (NYSE: AIR) today reported net sales of $246.1 million and income from continuing operations of $13.8 million, or $0.33 per diluted share, for the second quarter of fiscal 2007. Sales grew 13% from $218.2 million in the second quarter of last year, and income from continuing operations increased 75% from $7.9 million in the prior year.
Following are highlights for each segment:
Aviation Supply Chain -- Sales grew 24% to $133.9 million, and gross profit increased 32% to $29.9 million in the Company's largest segment. AAR continued to capture business from customers looking to reduce costs and improve efficiencies. The segment further benefited from strength in existing programs for commercial and defense customers. During the second quarter, the Company announced a new end-to-end supply chain program to support 24 CRJ 200 regional jets for Chautauqua Airlines, a regional airline owned by Republic Airways Holdings, which begins January 2007. Demand for products supporting customer supply chain requirements remains strong as the Company continues to invest in assets to support this activity and position the segment for future growth.
Maintenance, Repair and Overhaul -- Sales for the quarter increased 3% to $44.5 million and gross profit for the segment increased 24% to $6.1 million.
Sales at the Company's Indianapolis operation were lower due primarily to fewer scheduled maintenance visits from a major airline customer. The Company announced today a new three-year agreement to perform heavy maintenance services and winglet installations for Southwest Airlines. The Company announced in early November a contract award for heavy maintenance work and interior modifications for Northwest Airlines. The increase from one base load customer at fiscal year-end to four starting in January solidifies the positive outlook for this business.
The Company's landing gear and Oklahoma City MRO businesses significantly improved their operating profit during the quarter, reflecting robust demand for these services and increased operational efficiencies.
Structures and Systems -- Sales in this segment were $64.3 million, relatively flat year-over-year, and gross profit decreased 10% to $8.8 million. Demand for specialized mobility products remained steady, and volumes for composite products increased during the quarter. The Company received a $68 million pallet order from the U.S. Air Force in September 2006, with deliveries scheduled to begin in the Company's fiscal third quarter.
Sales of cargo systems were 23% lower as the Company began relocating production to the previously-announced, new manufacturing facility in North Carolina. Sales and margins are expected to increase in the fiscal fourth quarter as the business completes its move to the new facility, and further improvement is anticipated once shipments begin for the Airbus A400M military transport aircraft in early fiscal 2008.
Aircraft Sales and Leasing -- Operating income, which includes earnings from aircraft joint ventures, grew $3.2 million year-over-year as the segment continued to benefit from the Company's strategy to increase its activity in this growing market.
During the quarter, the Company sold its interest in two aircraft and acquired two aircraft through a joint venture. The increase in earnings from aircraft joint ventures was primarily driven by the sale of the Company's interest in these two aircraft. The total number of aircraft held in joint ventures remained at seventeen as of November 30, 2006, all of which are currently on lease. Also as of November 30, the Company directly owned eight aircraft, two of which were purchased earlier this year and are expected to be sold in the fiscal third quarter.
The Company's consolidated gross profit margin increased to 18.6% from 17.4% in the prior year. Selling, general and administrative costs increased $2.6 million year-over-year and declined to 10.6% of sales. Operating profit margin was 9.5%, up from 6.9% in the prior year.
"AAR achieved strong overall results while managing through a business relocation and preparing for our new customers at the Indianapolis facility," said David P. Storch, Chairman, President and Chief Executive Officer of AAR CORP. "During the quarter, we made meaningful progress toward our near-term goal of 10% and our longer-term goal of 12.5% operating margin. Increased volume, continued focus on higher margin activities and leveraging our cost structure all contributed to these results. As we enter the second half of the year, we believe we are well-positioned to execute on our commitments, attract new business and supplement the Company's organic growth with new and expanded capabilities."
AAR is a leading provider of products and value-added services to the worldwide aviation/aerospace industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve airline and defense customers through four operating segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems and Aircraft Sales and Leasing. More information can be found at http://www.aarcorp.com.
AAR will hold its quarterly conference call at 10:30 a.m. CST on December 20, 2006. The conference call can be accessed by calling 866-793-1344 from inside the U.S. or 703-639-1315 from outside the U.S. A replay of the call will be available by calling 888-266-2081 from inside the U.S. or 703-925-2533 from outside the U.S. (access code 1008742) from 1:30 p.m. CST on December 20, 2006 until 11:59 p.m. CST on December 27, 2006.
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 May 31, 2006 Form 10-K. 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 publicly release the result of any revisions that may be made to 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 Three Months Ended Six Months Ended Operations November 30, November 30, (In thousands except 2006 2005 2006 2005 per share data) (Unaudited) (Unaudited) Sales $ 246,067 $ 218,230 $ 488,265 $ 417,818 Cost and expenses: Cost of sales 200,208 180,240 399,662 345,146 Cost of sales - impairment charges --- --- 7,652 --- Selling, general and administrative 26,198 23,621 52,179 47,522 Earnings from aircraft joint ventures 3,761 593 6,802 798 Gain on sale of product line --- --- 5,358 --- Operating income 23,422 14,962 40,932 25,948 Gain on extinguishment of debt --- --- 2,927 --- Interest expense 4,737 4,507 9,403 8,629 Interest income 1,300 503 2,639 962 Income from continuing operations before income taxes 19,985 10,958 37,095 18,281 Income tax expense 6,217 3,082 11,381 5,147 Income from continuing operations 13,768 7,876 25,714 13,134 Discontinued operations: Operating loss, net of tax --- --- 162 --- Net income $ 13,768 $ 7,876 $ 25,552 $ 13,134 Share Data: Earnings per share - Basic: Earnings from continuing operations $ 0.38 $ 0.24 $ 0.71 $ 0.40 Loss from discontinued operations --- --- --- --- Earnings per share - Basic $ 0.38 $ 0.24 $ 0.71 $ 0.40 Earnings per share - Diluted Earnings from continuing operations $ 0.33 $ 0.22 $ 0.62 $ 0.37 Loss from discontinued operations --- --- --- --- Earnings per share - Diluted $ 0.33 $ 0.22 $ 0.62 $ 0.37 Average shares outstanding - Basic 36,250 33,048 36,161 33,005 Average shares outstanding - Diluted 43,145 37,137 42,969 37,073 Consolidated Balance Sheet Highlights November 30, May 31, (In thousands except per share data) 2006 2006 (Unaudited) (Derived from audited financial statements) Cash and cash equivalents $ 117,192 $ 121,738 Current assets 655,057 624,454 Current liabilities (excluding debt accounts) 176,209 185,499 Net property, plant and equipment 78,910 72,637 Total assets 1,001,031 978,819 Total recourse debt 289,354 293,624 Total non-recourse debt 30,419 27,241 Stockholders' equity 451,251 422,717 Book value per share $ 12.23 $ 11.53 Shares outstanding 36,912 36,654 Sales By Business Segment (In thousands -- unaudited) Three Months Ended Six Months Ended November 30, November 30, 2006 2005 2006 2005 Aviation Supply Chain $133,904 $107,993 $261,420 $215,104 Maintenance, Repair and Overhaul 44,477 43,257 94,073 81,229 Structures and Systems 64,268 63,817 124,631 115,177 Aircraft Sales and Leasing 3,418 3,163 8,141 6,308 $246,067 $218,230 $488,265 $417,818 Diluted Earnings Per Share Calculation (In thousands except per share data) Three Months Ended Six Months Ended November 30, November 30, 2006 2005 2006 2005 (Unaudited) (Unaudited) Net income as reported $13,768 $7,876 $25,552 $13,134 Add: After-tax interest on convertible debt 491 306 983 612 Net income for diluted EPS calculation $14,259 $8,182 $26,535 $13,746 Diluted shares outstanding 43,145 37,137 42,969 37,073 Diluted earnings per share $0.33 $0.22 $0.62 $0.37
SOURCE: AAR CORP.
Timothy J. Romenesko
Chief Financial Officer of AAR
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