Aviation Service Provider AAR Posts Mixed Bag Of Q2 Earnings, Set For Revenue And EPS Boost Post Triumph Deal

Thursday evening, AAR Corp AIR reported Q2 FY24 sales of $545.4 million, up 16% Y/Y, missing the consensus of $557.2 million.

The company's sales to commercial customers were up 24% Y/Y led by higher demand for new and used parts offerings. Sales to government customers grew 1% Y/Y in the quarter.

"We drove another quarter of double-digit sales growth in our commercial business with strong USM and new parts distribution volumes in our Parts Supply segment. Additionally, the recovery in global flight hours led to growth in our Integrated Solutions segment. Demand for MRO services continued to be strong and our hangars remained largely full throughout the quarter," said John M. Holmes, Chairman, President and CEO.

Adjusted gross profit margin expanded to 19.0% from 18.8% a year ago, aided by operating efficiency on higher sales volumes.  

Adjusted operating margin increased to 8.1% from 7.6% prior year on higher commercial sales.

Adjusted EPS from continuing operations rose 17% Y/Y to $0.81, beating the consensus of $0.80.

Operating cash flow stood at $17.4 million in the quarter. As of November 30, 2023, net debt stood at $211.9 million.

Acquisition: Yesterday morning, AAR disclosed the buyout of the Product Support business of Triumph Group Inc TGI for $725 million.

This acquisition includes expected tax benefits valued at around $80 million, brings the effective purchase price multiple to ~11.7x FY2024 EBITDA, or 9.9x when factoring in anticipated synergies of $10 million.

The company expects the deal to be accretive to revenue growth and Adjusted EPS in the first full fiscal year.

AAR's acquisition of Triumph Product Support is supported by a fully committed bridge facility. AAR intends for permanent financing to comprise a mix of debt and equity.

The company aims to achieve pro forma net leverage of about 3.0x at closing. Post-acquisition, AAR expects strong combined free cash flow, facilitating further deleveraging.

Price Action: AIR shares are trading lower by 1.40% at $69.80 premarket on the last check Friday.