AAR Corp.: Record Quarter Boosted By New Parts Distribution And Triumph Acquisition

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].