AAR Reports Second Quarter Fiscal Year 2019 Results
WOOD DALE, Ill., Dec. 18, 2018 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported second quarter fiscal year 2019 consolidated sales of $493.3 million and income from continuing operations of $11.2 million, or $0.32 per diluted share. Second quarter results included a non-cash pre-tax charge of $12.4 million, or $0.27 per diluted share, driven by a European airline customer bankruptcy. For the second quarter of the prior year, the Company reported sales of $420.6 million and income from continuing operations of $13.2 million, or $0.38 per diluted share. Our adjusted diluted earnings per share from continuing operations increased 51% from $0.39 last year to $0.59 in the current quarter.
Consolidated sales increased 17.3% over the prior year period due to continued growth in our trading, distribution and programs activities. Excluding the impact of the wind-down of the KC-10 CLS program and despite softness in our MRO activities, our Aviation Services sales grew 21.0% year over year.
"Our robust growth continued into the second quarter driven by exceptional performance in our trading, distribution and programs activities. These strong results were adversely impacted by a charge related to the bankruptcy of a European program customer which occurred late in the quarter. While this was an unfortunate development, overall we are confident in the strength and quality of our diverse customer base," said John M. Holmes, President and Chief Executive Officer of AAR CORP.
During the quarter, we announced several new business wins across the Company which include:
-- Distribution agreement with Zodiac Aerospace of the Safran Group to
distribute water and waste products
-- Distribution agreement with Ontic of BBA Aviation to distribute
electronics products across multiple military platforms
-- Engine supply agreement with Ameco, a Lufthansa Technik and Air China
joint venture
-- Government contract to provide maintenance and logistics support for the
U.S. Marshals' fleet of Boeing 737 aircraft
-- Joint venture with Napier Park Global Capital, a London based private
equity firm, to acquire late life aircraft
Holmes continued, "We are very pleased with the number of new contract awards across multiple product lines. We are further encouraged by the robust pipeline of opportunities we see in both the government and commercial markets which validates our growth strategy."
Sales to government and defense customers were 32% of consolidated sales compared to 26% in the prior year's quarter reflecting growth from the WASS program and other government sales. Second quarter sales to commercial customers, which also increased during the period, represented 68% of consolidated sales compared to 74% of consolidated sales in the second quarter of last year.
Gross profit margins decreased to 15.9% in the current quarter from 16.8% in the prior year quarter due primarily to lower volumes in our airframe maintenance facilities. Selling, general and administrative expenses as a percentage of sales were 10.0% for the quarter, compared to 11.6% last year, reflecting continued leverage of our cost structure to support our double-digit sales growth.
Net interest expense for the quarter was $2.4 million compared to $1.8 million last year. Also during the quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share. Average diluted share count for the quarter was 35.0 million compared to 34.5 million in the second quarter last year. Cash flow used in operating activities from continuing operations was $8.3 million.
Holmes concluded, "We acted upon numerous investment opportunities to support the significant growth in our trading, distribution and programs activities. As previously communicated, we expect to generate significant cash flow in the second half of the year and will become cash positive for the entire year."
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CT on December 18, 2018. 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 4196825). The replay will be available from 7:15 p.m. CT on December 18, 2018 until 10:59 p.m. CT on December 25, 2018.
About AAR
AAR is a global aerospace and defense aftermarket solutions company that employs more than 6,000 people in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through two operating segments: Aviation Services and Expeditionary Services. AAR's Aviation Services include parts supply; OEM solutions; integrated solutions; maintenance, repair, overhaul; and engineering. AAR's Expeditionary Services include mobility systems 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, 2018.
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
Operations Three Months Ended Six Months Ended
(In millions except
per share data -
unaudited) November 30, November 30,
---
2018 2017 2018 2017
Sales $493.3 $420.6 $959.6 $818.5
Cost and expenses:
Cost of sales 415.0 349.9 810.1 686.2
Provision for doubtful
accounts 12.4 0.1 13.0 0.3
Selling, general and
administrative 49.1 48.8 97.3 93.1
Operating income 16.8 21.8 39.2 38.9
Interest expense, net (2.4) (1.8) (4.0) (3.5)
Other income
(expense), net (0.2) 0.2
Income from continuing
operations before
income tax expense 14.2 20.0 35.4 35.4
Income tax expense 3.0 6.8 5.3 11.2
Income from continuing
operations 11.2 13.2 30.1 24.2
Loss from discontinued
operations (4.2) (35.8) (8.0) (36.2)
Net income (loss) $7.0 $(22.6) $22.1 $(12.0)
Earnings (Loss) per
share - Basic:
Earnings from
continuing operations $0.32 $0.39 $0.87 $0.71
Loss from discontinued
operations (0.12) (1.05) (0.23) (1.06)
Earnings (Loss) per
share - Basic $0.20 $(0.66) $0.64 $(0.35)
Earnings (Loss) per
share - Diluted:
Earnings from
continuing operations $0.32 $0.38 $0.85 $0.70
Loss from discontinued
operations (0.12) (1.04) (0.23) (1.05)
Earnings (Loss) per
share - Diluted $0.20 $(0.66) $0.62 $(0.35)
Share Data:
Weighted average
shares outstanding -
Basic 34.6 34.0 34.6 34.1
Weighted average
shares outstanding -
Diluted 35.0 34.5 35.1 34.5
AAR CORP. and Subsidiaries
Consolidated Balance Sheet Highlights
November 30, May 31,
(In millions except per share data - unaudited) 2018 2018
---
Cash and cash equivalents $25.7 $31.1
Current assets 1,040.7 942.7
Current liabilities 344.2 333.3
Property, plant and equipment, net 133.4 133.2
Total assets 1,604.2 1,524.7
Total debt 220.3 178.9
Stockholders' equity 935.6 936.3
Book value per share $26.66 $26.98
Shares outstanding 35.1 34.7
Sales By Business Segment (1) Three Months
Ended Six Months Ended
(In millions -unaudited) November 30, November 30,
--- ---
2018 2017 2018 2017
---
Aviation Services $462.9 $391.7 $901.3 $763.0
Expeditionary Services 30.4 28.9 58.3 55.5
---
$493.3 $420.6 $959.6 $818.5
===
Gross Profit by Business Segment Three Months
(1) Ended Six Months Ended
(In millions- unaudited) November 30, November 30,
--- ---
2018 2017 2018 2017
---
Aviation Services $74.9 $66.0 $142.0 $123.8
Expeditionary Services 3.4 4.7 7.5 8.5
---
$78.3 $70.7 $149.5 $132.3
===
(1) In the first quarter of fiscal
2019, we re-aligned the
composition of our operating
segments to leverage the full
breadth of our operational
expertise in Aviation Services.
Our government-owned,
contractor-operated business,
which includes the INL/A WASS
program, was previously included
in our Expeditionary Services
segment and is now reported
within our Aviation Services
segment for all periods
presented.
Adjusted income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted selling, general, and administrative expenses, 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 severance charges and other 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. 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 severance 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 Three Months Ended Six Months Ended
(In millions -
unaudited) November 30, November 30,
---
2018 2017 2018 2017
Income from continuing
operations $11.2 $13.2 $30.1 $24.2
Customer bankruptcy
charge, net of tax 9.6 9.6
Severance and
restructuring charges
(reversals), net of
tax 0.1 (0.1) 0.5
Adjusted income from
continuing operations $20.8 $13.3 $39.6 $24.7
Adjusted Diluted
Earnings per Share
from Continuing
Operations Three Months Ended Six Months Ended
(In millions -
unaudited) November 30, November 30,
---
2018 2017 2018 2017
Diluted earnings per
share from continuing
operations $0.32 $0.38 $0.85 $0.70
Customer bankruptcy
charge, net of tax 0.27 0.27
Severance and
restructuring
charges, net of tax 0.01 0.02
Adjusted diluted
earnings per share
from continuing
operations $0.59 $0.39 $1.12 $0.72
Adjusted Selling,
General and
Administrative
Expenses Three Months Ended Six Months Ended
(In millions -
unaudited) November 30, November 30,
---
2018 2017 2018 2017
Selling, general and
administrative
expenses $49.1 $48.8 $97.3 $93.1
Severance and
restructuring
(charges) reversals (0.2) 0.1 (0.8)
Stock-based
compensation (1.2) (2.8) (5.2) (5.3)
Adjusted selling,
general and
administrative
expenses $47.9 $45.8 $92.2 $87.0
Adjusted EBITDA Three Months Ended Six Months Ended Year Ended
May 31,
(In millions -
unaudited) November 30, November 30,
---
2018 2017 2018 2017 2018
Net income (loss) $7.0 $(22.6) $22.1 $(12.0) $15.6
Loss from discontinued
operations 4.2 35.8 8.0 36.2 58.1
Income tax expense 3.0 6.8 5.3 11.2 3.5
Other expense
(income), net 0.2 (0.2) 0.9
Interest expense, net 2.4 1.8 4.0 3.5 7.9
Depreciation and
intangible
amortization 10.4 10.6 20.5 20.8 40.5
Customer bankruptcy
charge 12.4 12.4
Severance and
restructuring charges
(reversals) 0.2 (0.1) 0.8 4.5
Stock-based
compensation 1.2 2.8 5.2 5.3 15.3
Adjusted EBITDA $40.8 $35.4 $77.2 $65.8 $146.3
Net Debt
November 30,
November 30,
2018 2017
(In millions- unaudited)
---
Total debt $220.3 $217.2
Less: Cash and cash equivalents (25.7) (27.1)
Net debt $194.6 $190.1
Adjusted Aviation Services Sales Three Months Ended
(In millions - unaudited) November 30,
---
2018 2017
Aviation Services sales $462.9 $391.7
Less: KC-10 program sales (0.2) (9.3)
Adjusted Aviation Services sales $462.7 $382.4
Growth 21.0%
Net Debt to Adjusted EBITDA
(In millions - unaudited)
---
Adjusted EBITDA for the year ended May 31, 2018 $146.3
Less: Adjusted EBITDA for the six months ended November 30, 2017 (65.8)
Plus: Adjusted EBITDA for the six months ended November 30, 2018 77.2
Adjusted EBITDA for the twelve months ended November 30, 2018 157.7
Net debt at November 30, 2018 $194.6
Net debt to Adjusted EBITDA 1.23
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SOURCE AAR
