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AAR Corp. (AIR) will be reporting its third-quarter 2012 financial results on Tuesday, March 20, 2012, after the close of the market.

The current Zacks Consensus Estimate for earnings per share (EPS) is 49 cents, representing an annualized growth of 9.26%.

With respect to earnings surprises over the trailing four quarters, AIR outperformed the Zacks Consensus Estimate in two quarters and underperformed in the rest. Average earnings surprise was a positive 4.43%, indicating that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second-Quarter 2012 Highlights

On December 15, 2011, AAR Corp. posted favorable second-quarter 2012 financial results. The company’s net income was roughly stable at $17.5 million or 45 cents per diluted share compared with $16.8 million or 45 cents per diluted share earned in the prior-year quarter. The EPS in the reported quarter excludes 2 cents per diluted share of transaction related expenses for acquisitions, including which the diluted earnings per share came in at 43 cents. Earnings per share, however, missed the Zacks Consensus Estimate of 46 cents in the reported quarter.

In the second quarter of 2012, consolidated sales were $475.9 million, up from $440.5 million in the second quarter of 2011. The sales rise was mainly attributable to robust demand for spare parts from government and defense customers.

Cost of sales in the quarter spiked 8.7% year over year to $398.7 million. The company’s operating margin plummeted marginally to 7.2% in the reported quarter from 8.0% in the year-ago comparable quarter.

Agreement of Estimate Revisions

In the last 30 days, no analyst increased or decreased the company’s earnings per share (EPS) estimates either for the third quarter or for the next quarter. Moreover, no analyst increased or decreased the EPS estimate for fiscal 2012 or for fiscal 2013. It appears that there has been no catalyst for such change.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained static at 49 cents per share for the second quarter of 2012, representing a year-over-year growth of a 9.26%.

Estimate for fiscal 2012 remained static at $1.92 over the last 30 days while that for fiscal 2013, the trend was followed at $2.44. These estimates represented a year-over-year growth of 5.01% and 26.71% for 2012 and 2013, respectively.

Our Take

Demand for air transport has amplified over the years with rising business activities alongside increase in defense spending across nations. Such a scenario is expected to bring in a positive trend in the financial results for the third quarter—raising sales. Margin and operational efficiencies during the quarter are also anticipated on the back of proficient and strong supply chain.

About the Company

Based in Wood Dale, Illinois, AAR Corp. provides various products and services to the aviation and defense industries worldwide. The company operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul; Structures and Systems; and Government & Defense Services. The company competes directly with its peers such as Goodrich Corp (GR), Boeing Co (BA), Lockheed Martin Corporation (LMT).

We currently maintain a long-term Neutral recommendation on the stock. AIR has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

AAR CORP (AIR): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
GOODRICH CORP (GR): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report

Source: AAR Corp: Earnings Preview