Looking Ahead to AAR’s Earnings

| About: AAR Corporation (AIR)
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What Went Right In the Quarter?

Quiet on the home front

Aside from a few minor deals with the US government for some additional orders, AAR has been extremely quiet on the home front this quarter.

There have been no major announcements either good nor bad, and if it weren’t for the gyrations of the company’s stock price, there really wouldn’t be much to talk about.

On that note, I did issue a buy recommendation earlier this quarter for AAR at or around $11.75 per share, which is looking great now with the stock trading around $16.00 (still too low, but more in-line with where it should be).

In addition, I was waiting to see validation and confirmation from those inside the company in the form of insider buying, which took place at prices ranging from $10.20 - $17.00 per share, with the CEO purchasing 10,000 shares at the lowest price.

In that post I outlined the reasons for my purchase, including AAR trading way below book and tangible book value, and way lower than its peers even though the company is in much better shape than others within the aerospace and defense industry.

That validation has so far come to fruition.

What Went Wrong in the Quarter

Continued weakness in airline industry

There’s no doubt that AAR’s numbers have come down in terms of growth projections for the coming year, but the best part is that AAR is still growing!

This is all organic growth and has shown no signs of slowing down because AAR is truly the best in class in this market, and delivers such a powerful value proposition to its buyers and customers, that they don’t need to go elsewhere.

Even in the face of higher fuel prices, which have since come way down, and decreased consumer air travel, AAR’s sales, margins, and guidance remained strong throughout, and not only met, but beat those lowered expectations of Wall Street.

This isn’t just a 1-2 quarter phenomenon, but well into 1 year now where AAR has repeatedly matched or beaten estimates with no large revisions in their forecast aside from that of the overall airline market.

What I Want to See

In line results would just fine please

AAR is projected to earn $.49 per share this quarter, and based on their past record, I expect them to meet or beat that number.

The same goes for the top line sales figure.

Where I want to see significant improvement, is in the cash flow statement, where AAR was turning things around and paying off debt, before last quarter when they went backwards.

The overall trend, and what AAR is focusing on, is profitability, free cash flow generation, and paying down some of their debt, while keeping costs under control, and increasing margins.

I want to see this transpiring.

What We Need To See

No Surprises

I would think that the market is perhaps braced for some potential bad news, and have been for quite some time, with AAR.

I think that anything within reason (slight slowdown, etc.) is fine, as long as there are no jarring missteps, or revisions.

What We’ll Probably See

Smooth landing

From the day I started covering AAR, I have been impressed with the consistency and competence of the management team.

David Storch, the CEO, has guided AAR through all kinds of crises’ in the past including rough times in the 80’s, 90’s, September 11th, and the current economic crisis.

Through it all, AAR has always come out on the other side stronger, with a better balance sheet, and more prepared for the coming years, while many of their competitors floundered or failed all-together.

I expect more of the same calm, collected leadership that we’ve seen in the past.

Bottom Line

Could be slow going, but AAR will be fine

AAR might be a little cautious in their outlook and view for the future, but nonetheless, the company remains on solid footing.

Their diversified portfolio of services to both foreign and domestic customers, as well as the US government, shield them from the malaise in the credit markets and the decline in airline spending which has slightly hit their MRO division.

AAR is poised to keep up the good work that they are known for and I don’t expect this quarterly results period to yield anything different from what we have come to expect.

New to the AAR Story?

AAR Logo

AAR Corp. provides products and services to the aviation, aerospace, and defense industries worldwide.

It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (NYSE:MRO); Structures and Systems; and Aircraft Sales and Leasing.

Through its Aviation Supply Chain and MRO segments, AAR provides everything from aircraft parts, maintenance and logistics support, to the actual maintenance and repair of aircraft at its 4 MRO facilities at various locations throughout the U.S.

In addition, through its Structures and Systems segment, AAR provides vital products and services to the U.S. military including specialized construction of mobile shelters and pallets, as well as support and products for various military aircraft and aircraft support, storage and maintenance functions.

Finally, through its Sales and Leasing segment, AAR buys, sells and leases used aircraft for itself, on behalf of others, and through joint ventures.

  • Read: My latest company analysis and quarterly earnings breakdown here.
  • OR: Read why I recently added to my AAR position by clicking here.