AAR (AIR) Down 1.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for AAR (AIR). Shares have lost about 1.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AAR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AAR Corp Q4 Earnings Beat Estimates, Sales Rise Y/Y

AAR Corp. reported fourth-quarter fiscal 2019 adjusted earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 62 cents by 3.2%. The figure reflected a year-over-year improvement of 33.3% from 48 cents registered in the year-ago quarter.

Excluding one-time items, the company reported earnings of 76 cents from continuing operations compared with 52 cents in fourth-quarter fiscal 2018.

AAR Corp’s adjusted earnings for fiscal 2019 came in at $2.36 per share, which lagged the Zacks Consensus Estimate of $2.54 by 7.1% but exceeded the year-ago earnings of $1.73.

Total Sales

In the quarter under review, net sales totaled $562.7 million. The reported figure outpaced the Zacks Consensus Estimate of $530 million by 6.2% and also increased 18.8% from $473.5 million recorded in the year-ago quarter.

The year-over-year improvement in sales was driven by consistent growth in the company’s parts supply and programs activities.

Segment Details    

In the fiscal fourth quarter, sales at the Aviation Services segment summed $522 million, up 17.6% year over year. The upside was driven by strong demand for both new and aftermarket parts as well as successful execution on the WASS program and other government programs.

Expeditionary Services garnered sales of $49.7 million, up 37% from $29.7 million in the year-ago quarter.

Highlights of the Release

AAR Corp’s cost of sales in the reported quarter increased 20.4% year over year to $468 million.

Selling, general and administrative expenses rose 2.4% to $63.3 million.
The company incurred interest expenses of $2.1 million compared with $2.2 million in fourth-quarter fiscal 2018.

During the quarter under review, the company paid cash dividends of $2.6 million, or 7.5 cents per share. It also repurchased 0.3 million shares for $9.5 million.

Financial Condition

As of May 31, 2019, AAR Corp’s cash and cash equivalents amounted to $21.3 million compared with $31.1 million as of May 31, 2018.

As of May 31, 2019, net property, plant and equipment expenses totaled$132.8 million compared with $133.2 million as of May 31, 2018.

As of May 31, 2019, total debt decreased to $142.9 million from $178.9 million as of May 31, 2018.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -9.77% due to these changes.

VGM Scores

At this time, AAR has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise AAR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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