AAR Reports Fourth Quarter & Fiscal Year 2019 Results

WOOD DALE, Ill., July 10, 2019 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported fourth quarter fiscal year 2019 consolidated sales of $562.7 million and income from continuing operations of $26.6 million, or $0.76 per diluted share.  For the fourth quarter of the prior year, the Company reported sales of $473.5 million and income from continuing operations of $18.1 million, or $0.52 per diluted share.  Reported results include tax benefits which reduced income tax expense by $5.1 million, or $0.15 per diluted share, in the current quarter.  Reported results in the prior year's quarter included tax benefits of $3.2 million, or $0.09 per diluted share.  Our adjusted diluted earnings per share from continuing operations, which excludes these tax benefits and other items, increased 33% to $0.64 in the current quarter from $0.48 last year. 

Consolidated sales increased 19% over the prior year period from continued growth in our programs and parts supply activities.  Our Aviation Services segment experienced significant growth of 18% driven by strong demand for both new and aftermarket parts as well as successful execution on the WASS program and other government programs.  In our Expeditionary Services segment, sales increased 37% as we began executing against recent contract awards. 

"We are exceptionally pleased with our strong performance in the fourth quarter.  Our double-digit organic sales growth and solid cash flow generation were driven by the continued strength in our parts supply and programs activities," said John M. Holmes, President and Chief Executive Officer of AAR CORP. 

During the quarter, we announced a five-year extension of our engine support contract with MTU Maintenance.  We will continue to provide reliable, on-time engine parts to MTU via our Hannover, Germany facility.  Subsequent to the end of the quarter, we also announced a new distribution agreement with Woodward, Inc. to distribute spare piece parts in support of U.S. Government fleets across multiple engine platforms.

Sales to government and defense customers were 35% of consolidated sales compared to 26% in the prior year's quarter reflecting growth from the WASS program and other government programs.  Fourth quarter sales to commercial customers, which also increased during the period, represented 65% of consolidated sales compared to 74% of consolidated sales in the fourth quarter of last year.

Gross profit margin in the current quarter was 16.8% compared to 17.9% in the prior year quarter due primarily to the mix of products and services sold.  Selling, general and administrative expenses as a percentage of sales were 11.2% for the quarter, compared to 13.1% last year, reflecting continued leverage of our cost structure to support our double-digit sales growth. 

Net interest expense for the quarter was $2.1 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, and repurchased approximately 291,000 shares for $9.5 million.  Average diluted share count for both this quarter and the prior year quarter was 34.6 million shares. 

Cash flow from operating activities from continuing operations was $44.1 million during the current quarter.  The impact of our accounts receivable financing program resulted in a net reduction of $13.3 million in cash flows during the quarter.

Fiscal Year 2019 Results

Full Fiscal Year 2019 income from continuing operations was $84.1 million, or $2.40 per diluted share.  In Fiscal Year 2018, income from continuing operations was $73.7 million, or $2.11 per share.  Tax benefits reduced income tax expense by $11.6 million, or $0.34 per diluted share, in the current year, and $16.2 million, or $0.47 per diluted share, in the prior year.  Our adjusted diluted earnings per share from continuing operations, which excludes these tax benefits and other items, increased 36% to $2.36 in the current year from $1.73 last year.

Full Fiscal Year 2019 consolidated sales were $2.05 billion, an increase of 17.4% over Fiscal Year 2018.  Aviation Services sales grew by 17.4% as a result of strong performance in our parts supply activities and our successful execution of recent contract awards.  Expeditionary Services sales increased 16.6% in Fiscal Year 2019 reflecting higher volumes in our mobility products activities. 

Sales to government and defense customers were 33% of consolidated sales compared to 25% in the prior year reflecting growth from the WASS program and other government programs.  Sales to commercial customers, which also increased over the prior year, represented 67% of consolidated sales compared to 75% of consolidated sales last year.

Net interest expense for Fiscal Year 2019 was $8.5 million compared to $7.9 million last year.  During the year, the Company paid cash dividends of $10.5 million, or $0.30 per share, and repurchased approximately 313,000 shares for $10.3 million. 

Net debt at May 31, 2019 was $121.6 million compared to $147.8 million at May 31, 2018.  Cash flow from operating activities from continuing operations was $60.5 million in Fiscal Year 2019 compared to $55.8 million in Fiscal Year 2018.  Our accounts receivable financing program provided a benefit to cash flows of $14.5 million in Fiscal Year 2019 compared to a benefit of $71.7 million in the prior year.

Outlook

We are announcing financial guidance for Fiscal Year 2020 of 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.  At the midpoint of the ranges, this represents sales growth of 5% and adjusted earnings per share growth of 8%.  We 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.  In Fiscal Year 2019, we had an adjusted effective tax rate of 18.5%.

Holmes concluded, "Overall, we are pleased with the performance in Fiscal Year 2019. Our cash flow generation of $102 million in the second half of the year further improved our balance sheet providing us additional flexibility to deploy capital to execute our growth strategy and drive shareholder return.  We are well-positioned for continued success in Fiscal Year 2020 given the strength we see across our global commercial and government markets."    

Conference Call Information                                                          

AAR will hold its quarterly conference call at 3:45 p.m. CT on July 10, 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 5488863). The replay will be available from 7:15 p.m. CT on July 10, 2019 until 10:59 p.m. CT on July 17, 2019.

Investor Day Information                                                    

AAR will hold an Investor Day on Wednesday, July 17, 2019 at 8:30 a.m. ET in New York City. AAR's senior leadership team will provide an overview of the company's strategy and key opportunities.  For those not attending the event, an audio webcast of the presentations and accompanying slides will be available in the investor relations section of our website.

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.                  

Adjusted income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted selling, general, and administrative expenses, adjusted EBITDA, net debt, and our adjusted effective income tax rate 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 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: 

SOURCE AAR