Core Viewpoint - AAR (AIR) stock has experienced a significant decline of 12.1% over the past four weeks, but it is now in oversold territory, suggesting a potential turnaround as analysts expect better earnings than previously predicted [1] Group 1: Stock Performance and Indicators - The stock is currently in oversold territory with an RSI reading of 26.96, indicating that the heavy selling pressure may be exhausting itself [5] - A stock is generally considered oversold when its RSI falls below 30, which is a common technical indicator used to assess price movements [2][3] Group 2: Earnings Estimates and Analyst Consensus - Over the last 30 days, the consensus EPS estimate for AIR has increased by 0.1%, indicating a positive trend in earnings estimate revisions [6] - There is strong agreement among sell-side analysts regarding the company's ability to report better earnings, which typically leads to price appreciation [6] Group 3: Zacks Rank and Investment Potential - AIR currently holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further supporting the potential for a turnaround [7]

Financial Data and Key Metrics Changes - The company reported third quarter sales of $678 million, a 20% increase year-over-year, setting a new record for third quarter sales [9][28] - Adjusted EBITDA rose to $81.2 million, up 39% from the same quarter last year, with EBITDA margin increasing to 12% from 10.3% [11][30] - Adjusted earnings per share grew 16% to $0.99 compared to $0.85 from the same period last year [11][33] - Net debt leverage decreased to 3.06 times from 3.17 times in the prior quarter [12][38] Business Segment Data and Key Metrics Changes - **Parts Supply**: Sales increased 12% to approximately $271 million, driven by growth in new parts distribution activities [13][34] - **Repair & Engineering**: Sales grew 53% to $216 million, with adjusted EBITDA increasing 110% to $27.9 million [18][35] - **Integrated Solutions**: Sales slightly decreased by 1.6% to $163 million, but adjusted EBITDA was 11% higher at $16.2 million [23][36] Market Data and Key Metrics Changes - Sales to commercial customers increased by 22%, while sales to government customers rose by 15% [10][29] - Total commercial sales accounted for 72% of total sales, with government sales making up the remaining 28% [29] Company Strategy and Development Direction - The company is focused on expanding its aftermarket services and improving margins, benefiting from strong demand in both commercial and government markets [8][42] - The integration of Product Support is on schedule, with expectations for further margin expansion through synergies and operational efficiencies [20][42] - The company is pursuing exclusive distribution agreements to enhance its market position, such as with Unison and Chromalloy [15][102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, expecting it to continue through calendar year 2025 [8][42] - The company anticipates mid-single-digit year-over-year sales growth for Q4 FY'25, with adjusted operating margins projected between 9.7% and 9.9% [42][43] - Management noted that while USM sales were below expectations, they expect demand to rebound as maintenance deferrals are addressed [51][115] Other Important Information - The company is close to completing the divestiture of its Landing Gear business, which is expected to be accretive to margins but not significantly impactful [40][65] - The company is investing in its Trax business, which is expected to drive further operating margin expansion as it scales [66][106] Q&A Session Summary Question: Insights on USM market and future expectations - Management indicated that the decline in USM was temporary due to maintenance deferrals and expects demand to recover [51][53] Question: Impact of airline capacity growth on business - Management noted no significant decline in demand signals and remains optimistic about maintaining business despite potential capacity reductions [55][57] Question: Margin expansion from Landing Gear divestiture - Management clarified that the divestiture would be slightly positive for margins but not to the extent of 30 to 40 basis points [64][65] Question: Updates on Trax business and potential deals - Management confirmed that Trax is expected to contribute to margin expansion and has a strong pipeline of customers [66][68] Question: Efficiency improvements in MRO facilities - Management highlighted substantial gains in margins and throughput, with further improvements expected from ongoing initiatives [73][76] Question: Defense opportunities and USM sales to government - Management reported no notable increase in USM sales to the government yet but is optimistic about future opportunities [78][80] Question: Update on partnership with FTAI - Management confirmed the extension of the partnership with FTAI, expecting increased volume over time [88][89] Question: Tariff situation and its impact - Management is monitoring tariff changes but is not making bulk purchases in anticipation of tariffs [92][93]

Group 1: Earnings Performance - AAR reported quarterly earnings of $0.99 per share, exceeding the Zacks Consensus Estimate of $0.96 per share, and up from $0.85 per share a year ago, representing an earnings surprise of 3.13% [1] - Over the last four quarters, AAR has surpassed consensus EPS estimates four times [2] - The company posted revenues of $678.2 million for the quarter, missing the Zacks Consensus Estimate by 2.95%, compared to year-ago revenues of $567.3 million [2] Group 2: Stock Performance and Outlook - AAR shares have increased approximately 13.7% since the beginning of the year, while the S&P 500 has declined by 2.9% [3] - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $1.06 for the coming quarter and $3.77 for the current fiscal year [4][7] - The current Zacks Rank for AAR is 3 (Hold), indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The Aerospace - Defense Equipment industry is currently in the top 12% of over 250 Zacks industries, suggesting a favorable outlook for stocks within this sector [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact AAR's stock performance [5]

Sales Performance - Consolidated sales for the third quarter of fiscal 2025 increased by $110.9 million, or 19.5%, primarily due to an increase in sales to commercial customers [163]. - Sales to commercial customers increased by $86.3 million, or 21.6%, driven by the acquisition of the Product Support business and strong demand in the Parts Supply segment [163]. - Consolidated sales for the nine-month period ended February 28, 2025 increased by $363.6 million, or 21.9%, with commercial sales up by $281.7 million, or 23.9% [171]. - In the Parts Supply segment, third-party sales increased by $28.4 million, or 11.7%, to $270.7 million for the three months ended February 28, 2025, driven by new parts distribution activities [181]. - The Repair & Engineering segment saw third-party sales increase by $75.1 million, or 53.3%, to $215.9 million, largely due to the acquisition of the Product Support business [183]. - The Integrated Solutions segment reported a slight decrease in third-party sales by $2.6 million, or 1.6%, to $162.9 million, attributed to lower government program activity [185]. - The Expeditionary Services segment experienced a significant sales increase of $10.0 million, or 53.5%, to $28.7 million, driven by higher sales volumes for pallets [187]. Profitability - Gross profit for the third quarter of fiscal 2025 increased by $21.4 million, or 19.4%, with gross profit margin for commercial sales slightly decreasing to 19.7% from 19.8% [165]. - Gross profit for the nine-month period increased by $62.5 million, or 19.8%, with commercial gross profit margin decreasing to 19.6% from 19.8% [174]. - Operating income in the Parts Supply segment rose by $14.3 million, or 46.0%, to $45.4 million, primarily due to the de-recognition of an $11.2 million Russian legal liability [182]. - Operating income in the Repair & Engineering segment increased by $7.5 million, or 65.2%, to $19.0 million, reflecting the higher margin from the Product Support business [184]. Expenses and Liabilities - Selling, general, and administrative expenses decreased by $15.7 million, or 20.4%, primarily due to the de-recognition of an $11.2 million Russian legal liability [167]. - Selling, general, and administrative expenses for the nine-month period increased by $52.9 million, or 24.3%, primarily due to costs related to FCPA investigations [176]. - Interest expense increased by $6.6 million in the third quarter of fiscal 2025 due to higher average borrowings related to the Product Support acquisition [168]. - The company recognized a non-cash, pre-tax impairment charge of $63.0 million related to the pending divestiture of the Landing Gear Overhaul business [170]. Cash Flow and Financing - Net cash used in operating activities was $15.3 million for the nine-month period ended February 28, 2025, a decrease of $34.4 million compared to the prior year, primarily due to a $55.6 million payment related to an FCPA settlement [213]. - Net cash used in investing activities was $16.9 million for the nine-month period ended February 28, 2025, a decrease of $9.9 million from the prior year, attributed to the sale of a building and favorable purchase price adjustments [214]. - Net cash provided by financing activities was $37.0 million for the nine-month period ended February 28, 2025, an increase of $27.5 million compared to the prior year, primarily due to higher borrowings on the Revolving Credit Facility [215]. - The company has repurchased 2.2 million shares for an aggregate purchase price of $97.5 million under the stock repurchase program authorized for up to $150 million [212]. Capital Resources - At February 28, 2025, the company had liquidity and capital resources of $989.6 million, including cash of $84.4 million, expected to meet cash requirements for at least the next 12 months [199]. - The company entered into an amendment to its Credit Agreement, increasing the revolving credit facility commitments to $825.0 million from 620.0 million [201]. - As of February 28, 2025, borrowings under the Amended Revolving Credit Facility were $482.0 million, with $335.2 million available for future use [203]. - The maximum amount of receivables sold under the Purchase Agreement with Citibank N.A. is limited to $150 million, with $13.4 million utilized as of February 28, 2025, reducing availability to $136.6 million [207][209]. Other Notable Events - A net termination charge of $4.8 million was incurred due to the termination of a power-by-the-hour program with a significant regional airline customer, which included a reduction in contract assets and revenue of $7.8 million [210]. - The company expects full payment from the customer for all amounts due under the terminated agreement, with accounts receivable of $14.9 million, including $7.8 million past due, as of February 28, 2025 [211]. - A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on the company's financial position or operations for the quarter ended February 28, 2025 [221]. - There have been no significant changes to the application of critical accounting policies during the third quarter of fiscal 2025 [216]. Future Developments - The company is constructing a 114,000 square foot facility in Miami, expected to be operational in the first half of fiscal 2027, and an 80,000 square foot facility in Oklahoma City, expected to be operational in the second half of fiscal 2026 [155].

Financial Performance - Sales for Q3 FY2025 were $678.2 million, a 20% increase from $567.3 million in Q3 FY2024[9] - Adjusted diluted EPS for Q3 FY2025 was $0.99, up 16% from $0.85 in the same quarter last year[10] - Adjusted EBITDA increased 39% to $81 million, with an adjusted EBITDA margin rising to 12.0% from 10.3% year-over-year[4] - Sales to commercial customers rose 22%, accounting for 72% of total consolidated sales, while sales to government customers increased by 15%[9] - The company reported a net loss of $8.9 million, or $0.25 per share, compared to a net income of $14.0 million, or $0.39 per diluted share, in the prior year[10] - Adjusted net income for the nine months ended February 28, 2025, was $98.1 million, compared to $87.1 million in 2024, reflecting a growth of 12.0%[33] - Adjusted diluted earnings per share for the three months ended February 28, 2025, was $0.99, compared to $0.85 in 2024, an increase of 16.5%[34] Cash Flow and Expenses - Cash flow used in operating activities was $18.7 million, impacted by a $56 million FCPA settlement during the quarter[14] - The company reported a net cash used in operating activities of $(18.7) million for the three months ended February 28, 2025, compared to $20.4 million provided in the same period of 2024[28] - Cash used in operating activities was $(18.7) million for the three months ended February 28, 2025, compared to cash provided of $20.4 million in the same period last year[35] - The adjusted cash provided by operating activities was $(15.0) million for the three months ended February 28, 2025, compared to $20.4 million in the same period last year[35] - Acquisition, integration, and amortization expenses totaled $7.5 million for the three months ended February 28, 2025, slightly up from $7.2 million in the previous quarter[35] - The company reported interest expense of $18.1 million for the three months ended February 28, 2025, compared to $11.3 million in the same period last year[35] Asset and Debt Management - Total assets increased to $2,859.1 million as of February 28, 2025, up from $2,770.0 million in May 2024, representing a growth of 3.2%[26] - Long-term debt increased to $1,022.3 million as of February 28, 2025, compared to $985.4 million in May 2024, indicating a rise of 3.8%[26] - Net debt rose significantly to $947.6 million as of February 28, 2025, compared to $207.8 million a year earlier, with a net debt to adjusted EBITDA ratio of 3.06[36] - The company aims for further margin expansion and deleveraging, reducing net leverage from 3.58x to 3.06x over the past year[15] Segment Performance - Parts Supply segment revenue for the three months ended February 28, 2025, was $270.7 million, a 11.7% increase from $242.3 million in the same period of 2024[30] - Operating income for the Repair & Engineering segment increased to $19.0 million for the three months ended February 28, 2025, up from $11.5 million in 2024, a rise of 65.2%[30] Strategic Initiatives - AAR announced a multi-year exclusive agreement with Chromalloy for the distribution of BELAC PW4000 PMA parts, enhancing its aftermarket service offerings[5] - The divestiture of the Landing Gear Overhaul business is expected to be completed for $51 million in Q4 FY2025, as part of the company's portfolio optimization strategy[7] - The company incurred $64.0 million in losses related to the sale and exit of business/joint ventures for the three months ended February 28, 2025[35]

Core Insights - AAR CORP. reported a strong third quarter for fiscal year 2025, with sales increasing by 20% year-over-year to $678.2 million, driven by high demand for aftermarket services and contributions from recent acquisitions [2][5][6] - The company achieved significant earnings growth, with adjusted diluted EPS rising 16% to $0.99, despite a GAAP net loss of $8.9 million due to a pre-tax charge related to the divestiture of its Landing Gear Overhaul business [6][9][14] - EBITDA margin improved from 10.3% to 12.0%, reflecting operational efficiencies and successful integration of acquisitions [2][6][14] Financial Performance - Consolidated sales reached $678.2 million, up from $567.3 million in the same quarter last year, with a 22% increase in sales to commercial customers and a 15% increase to government customers [5][6] - Adjusted EBITDA for the quarter was $81 million, a 39% increase year-over-year, with an adjusted EBITDA margin of 12.0% [6][34] - The company reported a net loss of $8.9 million, or $(0.25) per share, compared to a net income of $14 million, or $0.39 per diluted share, in the prior year [9][22] Business Developments - AAR secured several new business agreements, including exclusive distribution agreements with Chromalloy and Unison, enhancing its position in the aviation aftermarket [2][7] - The company is set to divest its Landing Gear Overhaul business for $51 million, part of a strategy to optimize its portfolio [4][14] - AAR's Parts Supply segment accounted for 72% of consolidated sales, up from 70% in the prior year quarter, indicating a strong focus on aftermarket services [8][25] Operational Efficiency - Selling, general, and administrative expenses decreased to $61.3 million from $77 million in the prior year, aided by the reversal of a legal charge [10] - Operating margins improved to 10.5% from 5.8% in the prior year, with adjusted operating margins increasing to 9.7% from 8.3% [11][14] - The company reduced its net leverage from 3.58x to 3.06x over the year, indicating improved financial health [14][35]

Core Points - AAR CORP. has extended its exclusive Serviceable Engine Products agreement with FTAI Aviation Ltd. for CFM56 used serviceable material collaboration through 2030 [1][5] - The collaboration has made USM inventory available to the global aviation aftermarket, with AAR managing the teardown, repair, marketing, and sales of spare parts from FTAI's CFM56 engine pool, which consists of over 450 engines [2][4] - AAR has expanded its Component Services footprint by acquiring five additional global component repair facilities since the original agreement in 2020, enhancing its capabilities in maintenance, repair, and overhaul [4] Company Overview - AAR is a global aerospace and defense aftermarket solutions company operating in over 20 countries, supporting commercial and government customers through four segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services [6] - FTAI Aviation focuses on owning and maintaining commercial jet engines, particularly CFM56 and V2500 engines, and provides cost savings and flexibility to its customer base through its proprietary products and services [7]

Investment Strategy - The company employs a contrarian investment style, focusing on high-risk, illiquid options and shares [1] - The investment portfolio is split approximately 50%-50% between shares and call options [1] - The investment timeframe typically ranges from 3 to 24 months [1] Stock Selection Criteria - The company targets stocks that have recently experienced sell-offs due to non-recurrent events, especially when insiders are buying shares at lower prices [1] - Fundamental analysis is utilized to assess the health of companies, including their leverage and financial ratios compared to sector and industry averages [1] - Professional background checks are conducted on insiders who purchased shares after sell-offs [1] Technical Analysis - Technical analysis is used to optimize entry and exit points for positions, employing multicolor lines for support and resistance levels on weekly charts [1] - Trend lines are drawn in multicolor patterns to aid in analysis [1]

Core Insights - AAR CORP. has elected Hema Widhani to its Board of Directors, increasing the board size from 11 to 12 members [1] - Ms. Widhani has over 20 years of experience in digital, marketing, and customer experience, currently serving as Chief Digital and Marketing Officer at Prudential Financial [2] - Her expertise includes leading Generative AI initiatives and enhancing customer engagement through digital transformation [2] Company Overview - AAR CORP. is a leading provider of aviation services, supporting both commercial and government operators, MROs, and OEMs [1] - The company operates in over 20 countries and has four main segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services [4] - AAR is recognized for its commitment to quality service, encapsulated in its motto "Doing It Right®" [2]

Core Viewpoint - AAR Corp. (AIR) is positioned as a strong investment option in the aerospace maintenance, repair, and overhaul (MRO) market due to its robust earnings estimates, low debt levels, and growth prospects [1] Group 1: Growth Projections - The Zacks Consensus Estimate for AAR's fiscal 2025 earnings per share (EPS) has increased by 0.5%, while the estimate for fiscal 2026 EPS has risen by 0.6% over the past 60 days [2] - The projected revenue for fiscal 2025 is $2.77 billion, indicating a 19.5% increase from fiscal 2024, and for fiscal 2026, the revenue estimate is $2.96 billion, reflecting a 6.8% growth [2] - AAR has delivered an average earnings surprise of 3.90% over the last four quarters [3] Group 2: Debt Position - AAR's total debt to capital ratio stands at 45.51%, which is better than the industry average of 53.48% [4] - The times interest earned (TIE) ratio at the end of Q2 fiscal 2025 was 1.5, indicating the company can meet its interest obligations without issues [4] Group 3: Liquidity - AAR's current ratio at the end of Q2 fiscal 2025 was 2.68, surpassing the industry average of 1.74, demonstrating the company's ability to meet short-term liabilities [5] Group 4: Expansion in MRO Market - AAR completed the acquisition of Triumph Group, Inc.'s Product Support Business for $725 million in 2024, enhancing its MRO capabilities [6] - In March 2025, AAR signed a multi-year deal to provide nacelle MRO services for Cebu Pacific Air's A320 fleet in Thailand [7] - AAR formed a joint venture with Air France Industries KLM Engineering & Maintenance in December 2024 to offer next-generation nacelle MRO services in the Asia-Pacific region [7][8] Group 5: Stock Performance - Over the past three months, AIR shares have increased by 12.1%, outperforming the industry's growth of 3.3% [10]