Core Viewpoint - AAR Corp. has shown strong performance in its latest earnings report, with significant year-over-year growth in earnings and sales, leading to a positive outlook for the stock [2][4][10] Financial Performance - AAR reported adjusted earnings of $1.18 per share for Q2 fiscal 2026, exceeding the Zacks Consensus Estimate of $1.02 by 15.7% and improving 31.1% from the previous year's 90 cents [2] - The company generated net sales of $795.3 million, surpassing the Zacks Consensus Estimate of $767 million by 3.7% and increasing 15.9% from $686.1 million in the same quarter last year [4] Segment Performance - Sales in the Parts Supply segment reached $353.6 million, reflecting a 29.2% year-over-year increase [5] - Repair & Engineering segment sales were $244.5 million, up 6.9% from the prior year [5] - Integrated Solutions sales amounted to $175.8 million, a 7.6% increase year-over-year [5] - Expeditionary Services recorded sales of $21.4 million, up 5.9% from the previous year [5] Operational Efficiency - AAR's adjusted operating margin improved from 9.2% to 10.2%, driven by higher volume and profitability in new parts distribution [6] - Selling, general and administrative expenses decreased to $88.7 million from $133.1 million a year ago [6] Financial Position - As of November 30, 2025, AAR's cash and cash equivalents were $75.6 million, down from $96.5 million as of May 31, 2025 [7] - Long-term debt totaled $952.7 million, slightly down from $968 million as of May 31, 2025 [7] - Net cash used from operating activities in the first six months of fiscal 2026 was $31.3 million, compared to a net cash provided of $3.4 million in the same period last year [7] Market Sentiment - There has been an upward trend in consensus estimates, with a shift of 11.01% in the past month [8] - AAR has a strong Growth Score of A but lags in Momentum Score with an F, resulting in an aggregate VGM Score of B [9] - The stock holds a Zacks Rank 2 (Buy), indicating expectations for above-average returns in the coming months [10]

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]