Core Viewpoint - Three stocks have been added to the Zacks Rank 5 (Strong Sell) List due to significant downward revisions in their earnings estimates for the current year [1] Company Summaries - **AAR Corp. (AIR)**: Provides products and services to the commercial aviation, government, and defense sectors. The Zacks Consensus Estimate for its current year earnings has been revised downward by 6.3% over the last 60 days [1] - **Amkor Technology, Inc. (AMKR)**: Engages in semiconductor packaging and test services outsourcing. The Zacks Consensus Estimate for its current year earnings has been revised downward by 13.5% over the last 60 days [1] - **ArcBest Corporation (ARCB)**: Operates in freight transportation and integrated logistics services. The Zacks Consensus Estimate for its current year earnings has been revised downward by 13.5% over the last 60 days [1]

Core Insights - AAR CORP. has signed multiple long-term distribution agreements with Ontic to enhance their defense and commercial partnerships, improving service offerings for U.S. government and global commercial customers [1][2] Group 1: Agreements and Offerings - The first defense agreement allows AAR to support U.S. government customers with specific T55 engine components for the CH-47 helicopter [2] - AAR will increase its Ontic offerings for direct sales to the U.S. government by over 33% by adding part numbers for various platforms, including C-130, H-60, and E-2D [2] - AAR will distribute a thrust vector actuation systems motor manufactured by Ontic under a third agreement [2] - AAR and Ontic have signed a long-term global exclusive commercial agreement for parts related to multi-channel satellite communication systems [2] Group 2: Strategic Benefits - The agreements are expected to enhance part availability and reduce lead times for customers, leading to smoother supply chain management and more efficient operational planning [3] - The partnership aligns AAR's global sales expertise and contracting strengths with Ontic's engineering experience, benefiting shared defense and commercial customers [3] Group 3: Company Background - AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries, supporting commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services [4] - Ontic is a leading global aerospace OEM with over 50 years of experience, providing complex engineered parts and repair services for established aircraft in both defense and commercial markets [5]

Core Viewpoint - AAR Corp. (NYSE:AIR) is experiencing strong year-over-year growth, with consolidated sales reaching approximately $2.318 billion for FY2024, representing a 16.5% increase. The company is expected to continue benefiting from contract wins and increasing demand for maintenance, repair, and overhaul (MRO) services, leading to a positive outlook and a reiterated buy rating [1][14]. Financial Performance - For FY2024, AIR's consolidated sales grew 16.5% year-over-year, driven primarily by a 23.3% increase in sales to commercial customers, amounting to approximately $309 million. This growth was significantly supported by the acquisition of Triumph Group's Product Support business [3][5]. - Sales to government customers increased by 2.9% year-over-year to $681 million, primarily due to higher activity on the INL/A WASS contract with the US Department of State [4]. - AIR's adjusted operating margin improved from 7.5% to 8.3%, marking three consecutive years of margin expansion. The adjusted EBITDA margin rose from 9.5% to 10.5%, while the adjusted income from continuing operations margin remained robust at 5.1% [5][7]. Segment Performance - The Parts Supply segment grew 18.2% year-over-year, accounting for 41% of AIR's total sales in FY2024. This growth was driven by increased sales of new parts and aftermarket parts, particularly used serviceable material (USM) [8]. - The Repair & Engineering segment saw a 20% year-over-year sales increase to $640.1 million, supported by the acquisition of Triumph Group's Product Support business and growth in airframe maintenance facilities [11]. Contract Wins and Market Demand - AIR secured new contracts with Sumitomo Precision Products and Triumph, which are expected to enhance its Parts Supply segment. The contract with Sumitomo involves distributing V2500 starter and valve components, while the Triumph agreement will provide actuation products to commercial airlines and MROs starting in FY2026 [9][10]. - The aviation industry is facing a backlog of over 16,000 new aircraft orders, leading airlines to delay aircraft retirements and increasing demand for MRO services. This trend is expected to bolster AIR's Repair & Engineering segment, which accounts for approximately 28% of its total sales [11][14]. Valuation and Future Outlook - AIR's forward revenue growth rate is projected at 13.69%, significantly outperforming its peers' median of 8.19%. However, AIR's profitability margins are below the peer median, with an EBITDA margin of 8.77% compared to 12.16% for peers [12][13]. - For FY2025, AIR anticipates revenue growth between 15% and 19%, with an adjusted operating margin of approximately 9%. The company forecasts average annual organic sales growth of 5% to 10% over the next three to five years [13].

Core Insights - AAR CORP. has been recognized on TIME's inaugural list of America's Best Mid-Size Companies 2024, highlighting its strengths in employee satisfaction, revenue growth, and sustainability transparency [1][2] Group 1: Company Recognition - The award is based on over 15 evaluation criteria, focusing on companies in the U.S. with revenues between $100 million and $10 billion in 2022 or 2023 [1] - AAR's Chairman, President, and CEO emphasized that the recognition reflects the company's strong corporate culture and commitment to corporate citizenship [2] Group 2: Company Overview - AAR is a global aerospace and defense aftermarket solutions provider, operating in over 20 countries [3] - The company supports both commercial and government customers through four main operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services [3]

Core Insights - AAR Corp. reported fourth-quarter fiscal 2024 adjusted earnings of 88 cents per share, exceeding the Zacks Consensus Estimate of 86 cents by 2.3% and improving 6% year-over-year [1] - The company generated net sales of $656.5 million in the quarter, slightly missing the Zacks Consensus Estimate of $660 million by 0.6%, but reflecting an 18.7% increase from $553.3 million in the prior year [2] - AAR's fiscal 2024 adjusted earnings totaled $3.33 per share, surpassing the Zacks Consensus Estimate of $3.30 by 0.9% and showing a 16.4% improvement from the previous year [1][2] Sales Performance - In the fourth quarter, AAR's Parts Supply segment sales reached $260.3 million, up 9.1% year-over-year [3] - Repair & Engineering segment reported sales of $216.4 million, a significant increase of 51.3% from the prior-year period [3] - Integrated Solutions sales were $163.5 million, reflecting a 10.2% increase from the year-ago quarter [3] - Expeditionary Services recorded sales of $16.3 million, down 30.3% year-over-year [3] Operational Metrics - AAR's gross profit margin declined by 10 basis points to 19.4% compared to the prior-year quarter [4] - The adjusted operating margin improved from 7.8% to 9.3%, driven by contributions from the recently acquired Product Support business [4] - Selling, general, and administrative expenses rose to $94 million from $70.8 million a year ago [4] - Net interest expense for the quarter increased to $18.7 million from $4.7 million in the prior-year period [4] Financial Position - As of May 31, 2024, AAR's cash and cash equivalents were $85.8 million, up from $68.4 million a year earlier [5] - The company's long-term debt increased to $985.4 million from $269.7 million as of May 31, 2023 [5]

Financial Data and Key Metrics Changes - The company reported record full year sales of $2.3 billion, an increase of 17% over the prior year [6] - Adjusted operating margins improved from 7.5% to 8.3% in fiscal 2024, with record adjusted diluted earnings per share from continuing operations of $3.33 compared to $2.86 last year [6] - Fourth quarter sales increased 19% year-over-year, with adjusted operating margin improving by 150 basis points from 7.8% to 9.3% [6][18] Business Line Data and Key Metrics Changes - **Parts Supply**: Sales grew 9% to $260 million, driven by 16% growth in distribution and 1% growth in USM [20] - **Repair and Engineering**: Revenue increased 51% to $216 million, with the product support acquisition contributing $73 million to revenue in the fourth quarter [21][22] - **Integrated Solutions**: Sales increased 10% to $163 million, driven by growth in government programs [22] Market Data and Key Metrics Changes - The company experienced strong demand from larger carriers, while lower-cost carriers showed some pullback [50] - Government sales increased 15% or 10% on an organic basis, reflecting a recovery in government program activities [17] Company Strategy and Development Direction - The company is focused on three main segments: Parts Supply, Repair & Engineering, and Integrated Solutions, with investments aimed at driving growth and improving efficiency [5] - The acquisition of Triumph Product Support is expected to enhance scale and repair capabilities, with a target of achieving $10 million in cost synergies by Q1 FY 2026 [12][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 5% to 10% average annual organic sales growth and 10% to 15% growth in organic adjusted EPS over the next three to five years [25] - The company anticipates continued growth and margin expansion in FY 2025, particularly in Parts Supply and Repair & Engineering [25][26] Other Important Information - The company reduced net debt to adjusted pro forma EBITDA from 3.6 times to 3.3 times at the end of Q4 [23] - The effective adjusted tax rate increased from 23.6% to 26.4%, with expectations of approximately 28% for FY 2025 [19] Q&A Session Summary Question: What are the factors affecting the expected 9% margins? - Management indicated that seasonality is a factor, with Q1 margins expected to be lower than Q4 due to aircraft availability during summer [30][31] Question: Can you clarify the organic growth targets? - Management stated that the organic growth assumptions are applied to a higher base that includes the Triumph acquisition [32][33] Question: What is the current state of the USM market? - Demand remains strong, but whole asset sales are constrained due to high demand for engines [36][37] Question: How sustainable is the recent growth in government distribution? - Management expects growth in government distribution to continue based on current backlog and operational tempo [58][59] Question: What are the expectations for operating margins in Integrated Solutions? - Margins are expected to be low single digits in the near term, but will improve as Trax ramps up [71][72]

Core Insights - AAR reported revenue of $656.5 million for the quarter ended May 2024, reflecting an 18.7% increase year-over-year, while EPS was $0.88 compared to $0.83 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $660.12 million by 0.55%, but the EPS exceeded the consensus estimate of $0.86 by 2.33% [1] Financial Performance Metrics - Net Sales for Expeditionary Services were $16.30 million, significantly below the estimated $19.40 million, marking a 30.3% decline year-over-year [2] - Operating income for Parts Supply was $35.20 million, surpassing the estimated $33.60 million [2] - Operating income for Repair & Engineering was $20.60 million, below the average estimate of $24.90 million [2] - Corporate and other segments reported an operating income of -$24.80 million, worse than the estimated -$11 million [2] - Operating income for Expeditionary Services was $0.40 million, compared to the average estimate of $1.25 million [2] - Integrated Solutions reported an operating income of $1.20 million, significantly lower than the estimated $9.20 million [2] Stock Performance - AAR shares have returned +5% over the past month, outperforming the Zacks S&P 500 composite, which increased by +2.1% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

分组1 - AAR reported quarterly earnings of $0.88 per share, exceeding the Zacks Consensus Estimate of $0.86 per share, and up from $0.83 per share a year ago, representing an earnings surprise of 2.33% [1] - The company posted revenues of $656.5 million for the quarter ended May 2024, which missed the Zacks Consensus Estimate by 0.55%, compared to $553.3 million in the same quarter last year [1] - AAR has surpassed consensus EPS estimates three times over the last four quarters, while it has topped consensus revenue estimates only once in the same period [1] 分组2 - AAR shares have increased approximately 18.9% since the beginning of the year, outperforming the S&P 500's gain of 17.2% [2] - The current consensus EPS estimate for the upcoming quarter is $0.95 on revenues of $662.8 million, and for the current fiscal year, it is $4.10 on revenues of $2.72 billion [4] - The Aerospace - Defense Equipment industry is currently ranked in the top 21% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [4]

Partnerships and Acquisitions - In fiscal 2024, the company established new partnerships and expanded service offerings, leading to record levels of MRO spend and increased demand for aircraft maintenance [208]. - The acquisition of Trax in Q4 fiscal 2023 added higher-margin aviation aftermarket software offerings with recurring revenue, supporting approximately 5,000 aircraft [211]. - The company acquired Triumph Group, Inc.'s Product Support business for $725 million, enhancing its MRO capabilities and expanding its footprint in the Asia-Pacific region [212]. - The Product Support acquisition is expected to drive margin and revenue growth in fiscal 2025 by scaling component services and balancing the portfolio within the Repair & Engineering segment [213]. Financial Performance - Consolidated sales in fiscal 2024 increased by $328.4 million, or 16.5%, primarily due to a 23.3% increase in sales to commercial customers [215]. - Gross profit in fiscal 2024 increased by $72.2 million, or 19.5%, with commercial customer gross profit rising by 29.6% [217]. - Selling, general and administrative expenses rose by $81.8 million, or 35.5%, largely due to acquisition-related expenses [219]. - Operating income in fiscal 2024 decreased by $4.7 million, or 3.5%, primarily due to increased selling, general and administrative expenses [221]. Segment Performance - Parts Supply segment sales increased by $148.6 million, or 18.2%, driven by new parts distribution activities [225]. - Repair & Engineering segment sales rose by $106.7 million, or 20.0%, mainly due to the acquisition of the Product Support business [230]. - Integrated Solutions segment sales increased by $95.0 million, or 17.4%, attributed to higher commercial program activity [231]. - Expeditionary Services segment sales decreased by $21.9 million, or 23.9%, primarily due to lower sales volumes for pallets [234]. Cash Flow and Liquidity - As of May 31, 2024, liquidity included working capital of $922.7 million, with cash of $85.8 million [237]. - Net cash provided by operating activities increased to $43.6 million in fiscal 2024, up from $23.3 million in the prior year, primarily due to working capital changes [250]. - Net cash used in investing activities rose significantly to $758.5 million in fiscal 2024, compared to $138.0 million in the prior year, mainly due to the acquisition of the Product Support business [251]. - Net cash provided by financing activities was $729.2 million in fiscal 2024, an increase from $137.7 million in the prior year, primarily related to debt financing for the acquisition of the Product Support business [252]. Receivables and Obligations - As of May 31, 2024, accounts receivable included $8.4 million, with $4.1 million past due, and contract assets of $10.1 million related to a significant regional airline customer [248]. - The maximum amount of receivables sold under the Purchase Agreement with Citibank N.A. is limited to $150.0 million, with $12.8 million utilized as of May 31, 2024 [245][246]. - The company has contractual obligations totaling $447.0 million for credit agreement borrowings and $550.0 million for 6.75% senior notes as of May 31, 2024 [253]. - The company has off-balance sheet purchase obligations amounting to $656.0 million, primarily related to inventory acquisition commitments [254]. Revenue Recognition and Accounting Policies - Revenue is recognized at a point in time upon transfer of control to the customer, generally upon shipment [270]. - The company utilizes the cost-to-cost method to recognize revenue over time, measuring progress based on actual costs incurred relative to estimated total costs [271]. - Changes in estimates related to long-term programs are recorded using the cumulative catch-up method, primarily affecting profitability estimates [272]. - Contract modifications that do not create distinct obligations are accounted for as adjustments to existing contracts, recognized on a cumulative catch-up basis [273]. - Contract assets consist of unbilled receivables where revenue recognized exceeds amounts billed, while contract liabilities include advance payments [276]. Risk Management and Impairment - An allowance for credit losses is maintained based on past collection history and specific risks, considering economic conditions and customer credit history [277]. - Regular evaluations of customer payment experience and financial condition are performed, with collateral required for transactions outside normal trade terms [278]. - Impairment testing of long-lived assets is conducted when events indicate that carrying values may not be recoverable from undiscounted cash flows [280]. - The company maintains a significant inventory of rotable parts and equipment, which may require impairment recognition if certain aircraft models are discontinued [281].

Financial Performance - Record fourth quarter sales of $657 million, up 19% over the prior year[1] - Fourth quarter adjusted diluted earnings per share from continuing operations of $0.88, up 6% from $0.83 in Q4 FY2023[1] - Full year consolidated sales were $2.3 billion, an increase of 17% from fiscal year 2023[7] - Sales to commercial customers increased 20% over the prior year quarter, representing 70% of consolidated sales[2] - Adjusted operating margin increased from 7.5% in fiscal year 2023 to 8.3% in fiscal year 2024[7] - Operating margins were 5.6% for the full year, compared to 6.7% in fiscal year 2023[7] - Total third-party sales for the three months ended May 31, 2024, reached $656.5 million, up from $553.3 million in the same period of 2023, with year-to-date sales increasing to $2,318.9 million from $1,990.5 million[17] - Adjusted diluted earnings per share from continuing operations increased to $0.88 for the three months ended May 31, 2024, up from $0.83 in the same period last year, representing a 6.0% growth[23] - Adjusted operating margin improved to 9.3% for the three months ended May 31, 2024, compared to 8.3% for the same period in 2023[24] - Adjusted EBITDA for the three months ended May 31, 2024, was $76.4 million, significantly higher than $53.0 million for the same period in 2023, marking a 44.0% increase[25] - Total sales for the year ended May 31, 2024, reached $2,318.9 million, compared to $1,990.5 million for the year ended May 31, 2023, indicating a 16.5% growth[24] Cash Flow and Liquidity - Cash flow provided by operating activities from continuing operations was $43.8 million in fiscal year 2024[9] - Cash flows provided by operating activities from continuing operations were $24.5 million for the three months ended May 31, 2024, compared to $45.3 million in the same period of 2023[16] - The company’s cash and cash equivalents increased to $85.8 million, compared to $68.4 million in the prior year, showing better liquidity[15] - The company’s cash and cash equivalents at the end of the period were $96.1 million, up from $81.8 million at the beginning of the period, indicating improved liquidity[16] Debt and Interest Expense - Net interest expense for the quarter was $18.7 million, compared to $4.7 million last year[5] - Long-term debt increased to $985.4 million as of May 31, 2024, compared to $269.7 million in the prior year, reflecting a significant rise[15] - Net debt increased significantly to $911.2 million as of May 31, 2024, compared to $203.6 million in the previous year[26] - Total debt as of May 31, 2024, was $997.0 million, a significant increase from $272.0 million in 2023[26] - The ratio of net debt to adjusted EBITDA rose to 3.76 as of May 31, 2024, compared to 1.07 in the prior year[27] - The net debt to pro forma adjusted EBITDA ratio was reported at 3.30[28] Profitability and Expenses - Gross profit for the three months ended May 31, 2024, was $127.3 million, representing a 17.8% increase compared to $108.1 million in the prior year[14] - Selling, general and administrative expenses rose to $94.8 million, up 33.9% from $70.8 million in the same period last year, impacting overall profitability[14] - The company incurred a pension settlement charge of $26.7 million during the year ended May 31, 2024, impacting overall financial performance[16] - Acquisition, integration, and amortization expenses for the three months ended May 31, 2024, were $18.6 million, up from $5.1 million in the same period last year[22] - Investigation and remediation compliance costs increased to $4.8 million for the three months ended May 31, 2024, compared to $1.6 million for the same period in 2023[22] Segment Performance - Operating income for the Parts Supply segment increased to $35.2 million for the three months ended May 31, 2024, compared to $29.0 million in the same period of 2023, contributing to a year-to-date operating income of $109.8 million versus $93.7 million[18] - The Parts Supply segment generated $260.3 million in sales for the three months ended May 31, 2024, compared to $238.6 million in the same period of 2023, indicating a growth trend[17] - The Repair & Engineering segment saw sales increase to $216.4 million for the three months ended May 31, 2024, from $143.0 million in the same period of 2023, reflecting strong demand[17] Earnings and Adjustments - Net income for the three months ended May 31, 2024, was $9.1 million, a decrease of 60.8% from $23.2 million in the same period last year[14] - The company reported a basic earnings per share of $0.26 for the three months ended May 31, 2024, down from $0.67 in the same period last year[14] - Net income for the three months ended May 31, 2024, was $9.1 million, a decrease from $23.2 million for the same period in 2023, while the year-to-date net income was $46.3 million compared to $90.2 million in the previous year[16] - Adjusted income from continuing operations for the three months ended May 31, 2024, was $31.3 million, compared to $29.1 million for the same period in 2023, reflecting a 7.6% increase[22] - Adjusted EBITDA for the year ended May 31, 2024, was reported at $242.4 million, up from $189.8 million in 2023[27] - Pro forma adjusted EBITDA, including product support, reached $275.9 million for the year ended May 31, 2024[28] - Adjusted EBITDA reflects income from continuing operations before interest, taxes, depreciation, and amortization, with adjustments for various unusual items, providing a clearer view of core operating performance[21]