AAR Reports Third Quarter Fiscal Year 2019 Results
WOOD DALE, Ill., March 19, 2019 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported third quarter fiscal year 2019 consolidated sales of $529.5 million and income from continuing operations of $27.4 million, or $0.78 per diluted share. Third quarter results included a reduction in income tax expense of $6.5 million, or $0.19 per diluted share, primarily related to the recognition of previously reserved income tax benefits. For the third quarter of the prior year, the Company reported sales of $456.3 million and income from continuing operations of $31.3 million, or $0.90 per diluted share. Our adjusted diluted earnings per share from continuing operations increased 61% to $0.79 in the current quarter from $0.49 last year.
Consolidated sales increased 16% over the prior year period due to continued growth in our parts supply and programs activities. We continued to experience strong growth of 16% in our Aviation Services segment as well as growth of 18% in our Expeditionary Services segment.
"Our double-digit sales growth and strong cash flows were driven by outstanding performance in our parts supply and programs activities. Our comprehensive aviation services growth strategy has driven success in both the global commercial and government markets," said John M. Holmes, President and Chief Executive Officer of AAR CORP.
Subsequent to the end of the quarter, we announced a new international site, Costa Rica, within the INL/A WASS program with the U.S. Department of State. We expect to begin our operations in Costa Rica in the fourth quarter of fiscal 2019 achieving full run rate by the end of the first quarter of fiscal 2020. We also announced a contract award for production of cargo pallets for the U.S. Air Force. This contract will be fulfilled by AAR Mobility Systems which is a global leader in the design and production of lightweight pallets for use in military aircraft.
Sales to government and defense customers were 33% of consolidated sales compared to 23% in the prior year's quarter reflecting growth from the WASS program and other government sales. Third quarter sales to commercial customers, which increased slightly during the period, represented 67% of consolidated sales compared to 77% of consolidated sales in the third quarter of last year.
Gross profit margins decreased to 16.1% in the current quarter from 17.0% in the prior year quarter due to continued weakness in certain airframe maintenance facilities as a result of labor shortages in these markets. Selling, general and administrative expenses as a percentage of sales were 10.3% for the quarter, compared to 11.7% 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 $2.2 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 34.9 million compared to 34.5 million in the third quarter last year. Cash flow from operating activities from continuing operations was $57.6 million during the current quarter.
Subsequent to quarter end, we signed a definitive agreement to sell certain contracts and assets of our contractor-owned, contractor-operated ("COCO") business. We expect the sale, which is subject to certain regulatory approvals, to close before the end of calendar 2019. In conjunction with this agreement and other expected asset sales of the COCO business, we recognized a non-cash, after-tax impairment charge in discontinued operations of $58.5 million during the quarter.
We are updating our financial guidance for fiscal 2019 to reflect annual sales in the range of $2,010 to $2,030 million, adjusted EBITDA in the range of $165 to $170 million, and adjusted diluted earnings per share from continuing operations, inclusive of this quarter's tax benefits of $0.19, in the range of $2.50 to $2.57.
Holmes concluded, "We are very pleased with our double-digit organic growth during the quarter and particularly pleased with the cash flow from operations which further strengthened our balance sheet. We are excited about the opportunities we see to deploy capital to continue to build out our services offering and drive shareholder return."
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CT on March 19, 2019. The conference call can be accessed by calling 866-802-4322 from inside the U.S. or +1-703-639-1319 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 4480048). The replay will be available from 7:15 p.m. CT on March 19, 2019 until 10:59 p.m. CT on March 26, 2019.
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 Nine Months Ended
(In millions except
per share data -
unaudited) February 28, February 28,
---
2019 2018 2019 2018
---
Sales $529.5 $456.3 $1,489.1 $1,274.8
Cost and expenses:
Cost of sales 444.2 378.7 1,254.3 1,064.9
Provision for doubtful
accounts (a) 0.7 0.1 13.7 0.4
Selling, general and
administrative 54.8 53.3 152.1 146.3
Operating income 29.8 24.2 69.0 63.2
Interest expense, net (2.4) (2.2) (6.4) (5.7)
Other expense, net (0.6) (0.5) (0.4) (0.5)
Income from continuing
operations before
income tax expense
(benefit) 26.8 21.5 62.2 57.0
Income tax expense
(benefit) (0.6) (9.8) 4.7 1.4
---
Income from continuing
operations 27.4 31.3 57.5 55.6
Loss from discontinued
operations (64.8) (15.8) (72.8) (52.0)
---
Net income (loss) $(37.4) $15.5 $(15.3) $3.6
===
Earnings (Loss) per share - Basic:
Earnings from
continuing operations $0.79 $0.91 $1.66 $1.62
Loss from discontinued
operations (1.87) (0.46) (2.11) (1.52)
---
Earnings (Loss) per
share - Basic $(1.08) $0.45 $(0.45) $0.10
===
Earnings (Loss) per share - Diluted:
Earnings from
continuing operations $0.78 $0.90 $1.63 $1.60
Loss from discontinued
operations (1.86) (0.46) (2.08) (1.52)
---
Earnings (Loss) per
share - Diluted $(1.08) $0.44 $(0.45) $0.08
===
Share Data:
Weighted average
shares outstanding -
Basic 34.5 34.0 34.6 34.1
Weighted average
shares outstanding -
Diluted 34.9 34.5 35.0 34.5
(a) The nine-month period ended
February 28, 2019 includes a
provision for doubtful
accounts of $12.4 million
related to the bankruptcy of
a European airline customer.
AAR CORP. and Subsidiaries
Consolidated
Balance
Sheets February 28, May 31,
(In
millions) 2019 2018
--- ---
(unaudited)
ASSETS
Cash and
cash
equivalents $28.9 $31.1
Restricted
cash 21.5 10.5
Accounts
receivable,
net 237.6 202.0
Contract
assets 54.9
--
Inventories,
net 514.7 460.7
Rotable
assets
and
equipment
on or
available
for
lease 68.3 87.2
Assets of
discontinued
operations 28.2 125.0
Other
current
assets 39.3 26.2
Total
current
assets 993.4 942.7
Property,
plant,
and
equipment,
net 134.4 133.2
Goodwill
and
intangible
assets,
net 141.8 146.5
Rotable
assets
supporting
long-
term
programs 209.4 183.4
Other
non-
current
assets 67.5 118.9
Total
assets $1,546.5 $1,524.7
LIABILITIES AND EQUITY
Accounts
payable
and
accrued
liabilities $333.6 $308.3
Liabilities
of
discontinued
operations 26.0 25.0
Total
current
liabilities 359.6 333.3
Long-
term
debt 177.2 177.2
Other
liabilities
and
deferred
income 110.3 77.9
Total
liabilities 647.1 588.4
Equity 899.4 936.3
Total
liabilities
and
equity $1,546.5 $1,524.7
AAR CORP. and Subsidiaries
Consolidated Statements of Cash Flows Three Months Ended Nine Months Ended
(In millions - unaudited) February 28, February 28,
---
2019 2018 2019 2018
Cash flows provided from operating activities:
Net income (loss) $(37.4) $15.5 $(15.3) $3.6
Loss from discontinued operations 64.8 15.8 72.8 52.0
Income from continuing operations 27.4 31.3 57.5 55.6
Adjustments to reconcile income from continuing operations
to net cash
provided
from operating activities
Depreciation and intangible
amortization 10.8 10.6 31.3 31.4
Amortization of stock-based
compensation 3.6 3.4 8.8 8.7
Provision for doubtful accounts 0.7 0.1 13.7 0.4
Changes in certain assets and liabilities:
Accounts receivable (21.2) 48.7 (73.3) 34.8
Contract assets 8.2
-- (5.2) --
Inventories (19.7) (14.6) (71.8) (36.7)
Rotable assets supporting long-term
programs (11.5) (7.3) (38.2) (35.7)
Accounts payable and accrued
liabilities 44.8 (13.0) 50.5 (3.5)
Other 14.5 (8.9) 43.1 (39.4)
Net cash provided from operating
activities - continuing operations 57.6 50.3 16.4 15.6
Net cash provided from (used in)
operating activities - discontinued
operations 2.4 (7.5) 8.1 17.3
Net cash provided from operating
activities 60.0 42.8 24.5 32.9
Cash flows used in investing activities:
Property, plant and equipment
expenditures (4.3) (4.8) (12.3) (18.4)
Payments for acquisitions -- -- (2.3) (22.9)
Other -- 1.1 1.3 9.0
---
Net cash used in investing activities
- continuing operations (4.3) (3.7) (13.3) (32.3)
Net cash used in investing activities
- discontinued operations (0.1) (0.4) (0.5) (4.7)
Net cash used in investing activities (4.4) (4.1) (13.8) (37.0)
Cash flows provided from financing activities:
Proceeds from (repayments on)
borrowings, net (42.0) (21.0) -- 40.8
Cash dividends (2.6) (2.5) (7.9) (7.7)
Purchase of treasury stock (0.8) (7.9) (0.8) (13.1)
Other 0.1 0.7 8.3 9.7
Net cash provided from (used in)
financing activities - continuing
operations (45.3) (30.7) (0.4) 29.7
Net cash used in financing activities
- discontinued operations (0.7) (0.5) (1.4) (1.3)
Net cash provided from (used in)
financing activities (46.0) (31.2) (1.8) 28.4
Effect of exchange rate changes on
cash 0.1 -- (0.1) --
Increase in cash and cash equivalents 9.7 7.5 8.8 24.3
Cash, cash equivalents, and
restricted cash at beginning of
period 40.7 27.1 41.6 10.3
Cash, cash equivalents, and
restricted cash at end of period $50.4 $34.6 $50.4 $34.6
AAR CORP. and Subsidiaries
Sales By Business Three Months
Segment (1) Ended Nine Months Ended
(In millions -
unaudited) February 28, February 28,
--- ---
2019 2018 2019 2018
---
Aviation Services $497.3 $429.0 $1,398.6 $1,192.0
Expeditionary
Services 32.2 27.3 90.5 82.8
---
$529.5 $456.3 $1,489.1 $1,274.8
---
Gross Profit by Three Months
Business Segment (1) Ended Nine Months Ended
(In millions-
unaudited) February 28, February 28,
--- ---
2019 2018 2019 2018
---
Aviation Services $81.7 $72.1 $223.7 $195.9
Expeditionary
Services 3.6 5.5 11.1 14.0
---
$85.3 $77.6 $234.8 $209.9
---
(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 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 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 Nine Months Ended
(In millions -
unaudited) February 28, February 28,
---
2019 2018 2019 2018
Income from continuing
operations $27.4 $31.3 $57.5 $55.6
Deferred tax re-
measurement from the
Tax Cuts and Jobs Act
-- (13.0)
-- (13.0)
Impact of new lower
tax rate on first
half pre-tax income
-- (1.8)
--
--
Customer bankruptcy
charge, net of tax
--
-- 12.4
--
Severance and pension
settlement charges,
net of tax 0.2 0.8 0.2 1.3
Adjusted income from
continuing operations $27.6 $17.3 $70.1 $43.9
Adjusted Diluted
Earnings per Share
from Continuing Three Months Ended Nine Months Ended
Operations February 28, February 28,
(In millions -
unaudited)
---
2019 2018 2019 2018
Diluted earnings per
share from continuing
operations $0.78 $0.90 $1.63 $1.60
Deferred tax re-
measurement from the
Tax Cuts and Jobs Act
-- (0.38)
-- (0.38)
Impact of new lower
tax rate on first
half pre-tax income
-- (0.05)
--
--
Customer bankruptcy
charge, net of tax
--
-- 0.27
--
Severance and pension
settlement charges,
net of tax 0.01 0.02
-- 0.04
Adjusted diluted
earnings per share
from continuing
operations $0.79 $0.49 $1.90 $1.26
Adjusted Selling,
General and
Administrative
Expenses Three Months Ended Nine Months Ended
(In millions -
unaudited) February 28, February 28,
---
2019 2018 2019 2018
Selling, general and
administrative
expenses $54.8 $53.3 $152.1 $146.3
Severance charges (0.2) (1.1) (0.1) (1.9)
Stock-based
compensation (3.6) (3.4) (8.8) (8.7)
Adjusted selling,
general and
administrative
expenses $51.0 $48.8 $143.2 $135.7
Adjusted EBITDA Three Months Ended Nine Months Ended Year Ended
May 31,
(In millions -
unaudited) February 28, February 28,
---
2019 2018 2019 2018 2018
Net income (loss) $(37.4) $15.5 $(15.3) $3.6 $15.6
Loss from discontinued
operations 64.8 15.8 72.8 52.0 58.1
Income tax expense
(benefit) (0.6) (9.8) 4.7 1.4 3.5
Other expense, net 0.6 0.5 0.4 0.5 0.9
Interest expense, net 2.4 2.2 6.4 5.7 7.9
Depreciation and
intangible
amortization 10.8 10.6 31.3 31.4 40.5
Customer bankruptcy
charge
--
-- 12.4
--
--
Severance charges 0.2 1.1 0.1 1.9 4.5
Stock-based
compensation 3.6 3.4 8.8 8.7 15.3
Adjusted EBITDA $44.4 $39.3 $121.6 $105.2 $146.3
Net Debt February 28, February 28,
2019 2018
(In millions- unaudited)
---
Total debt $178.5 $196.2
Less: Cash and cash equivalents (28.9) (23.9)
Net debt $149.6 $172.3
Net Debt to Adjusted EBITDA
(In millions -unaudited)
---
Adjusted EBITDA for the year
ended May 31, 2018 $146.3
Less: Adjusted EBITDA for
the nine months ended
February 28, 2018 (105.2)
Plus: Adjusted EBITDA for
the nine months ended
February 28, 2019 121.6
Adjusted EBITDA for the
twelve months ended
February 28, 2019 162.7
Net debt at February 28,
2019 $149.6
Net debt to Adjusted EBITDA 0.92
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SOURCE AAR
