31-Jul-2013 Source: AAR
AAR CORP. (NYSE: AIR), a leading, global aviation and aerospace company, today reported fourth quarter and full fiscal year 2013 consolidated results. Fourth quarter sales were $553.8 million and adjusted diluted earnings per share were $0.50, which grew 11% versus the year-ago level of $0.45 per diluted share, excluding charges.
“We are pleased with our performance in the fourth quarter and for the full year as we drove record levels of annual sales and free cash flow. In addition, our fourth quarter and full year diluted earnings per share on an adjusted basis were better than expected,” said David P. Storch, Chairman and Chief Executive Officer of AAR CORP. “We finished the year with momentum in our Aviation Services segment as our revenue, up 7% in the fourth quarter, reflected continued strength in the commercial market and demand for our airlift capability. Our Technology Products segment declined as anticipated, with a strong performance at our Telair commercial cargo systems unit offset by expected softer demand for our Mobility Systems products. We continue to create value for shareholders by growing our business, increasing margins, maintaining a healthy dividend, opportunistically repurchasing shares and generating strong cash flow.”
Fourth Quarter 2013 Results
Fourth quarter consolidated sales were $553.8 million versus the prior year level of $563.3 million. Sales in the Aviation Services segment increased 7% to $417.2 million, driven by growth in the Company’s commercial supply chain business, continued strength in demand for the Company’s airlift services and the delivery of one aircraft to the Colombian Air Force (a second aircraft has been delivered in the first quarter of our fiscal 2014). Fourth quarter sales in the Technology Products segment declined 21% to $136.6 million, largely as a result of expected declines in delivery of mobility products for the defense market, partially offset by strength in commercial cargo systems.
Sales to commercial customers represented 63% of consolidated sales as compared to 60% of consolidated sales in the same period last year. Government and defense customers represented the balance of sales and declined slightly as a percentage versus the prior year.
In the fourth quarter, the Company took a $19.5 million after-tax charge ($29.8 million pre-tax) in connection with a contract with Northrop Grumman to provide supply chain services for the US Air Force fleet of KC-10 aircraft. Monthly flight hours began to decline in the Company’s third quarter and unexpectedly continued to decrease further during the Company’s fourth quarter. In the second half of fiscal 2013, monthly flight hours declined to an annualized average below 45,000 hours, or 28% less than the annualized average in the first half of fiscal 2013. According to information available to the Company, these are the lowest levels of annual flight hours under the KC-10 program since at least 1998. As a result of this decline in flight hour revenue, the Company revised its forecast for future usage of the fleet and lowered the revenue and profitability for the flight-hour portion of the contract, resulting in the charge.
Mr. Storch commented, “The charge reflects an adjustment of flight hour assumptions in our business model and the resulting effect on profitability of this program which, given the current flight hour environment, we believe is both prudent and appropriate. We will continue to seek ways to improve the economics of the program throughout the remainder of the contract.”
Consolidated gross profit margin for the fourth quarter on a reported basis was 10.9% and was unfavorably impacted by 500 basis points as a result of the charge.
Net interest expense in the fourth quarter declined to $9.6 million; the $1.8 million improvement compared to prior year reflects both lower interest rates and reduced debt levels. The Company reduced its net indebtedness by $91 million since June 1, 2012.
During the fourth quarter, the Company generated $75.1 million in cash flow from operations and had capital expenditures of $13.7 million. The Company paid dividends totaling $2.9 million during the fourth quarter.
Full-Year 2013 Results
Full-year 2013 consolidated sales were $2.14 billion. Aviation Services segment sales increased 5% to $1.61 billion as a result of strength in commercial supply chain and airframe maintenance, as well as continued strong activity in Airlift. Strength in these areas was offset by a reduction in defense logistics and aircraft sales. Technology Products segment sales declined 1% to $522.9 million driven by expected declines in demand for mobility products in the defense market, but positively offset by strength at Telair, the Company’s commercial cargo systems unit. Sales to commercial customers increased to 61% of total sales as compared to 55% in fiscal 2012, reflecting both the strength of the Company’s initiatives to grow its commercial business and the impact of reduced government spending.
Mr. Storch commented, “During fiscal 2013, we generated $163 million in cash flow from operations with $125 million in free cash flow. This strong performance enabled us to drive value to shareholders in a variety of ways as we reduced net indebtedness by $91 million, bought back almost one million shares of common stock for $14.6 million, and paid dividends totaling $12.8 million.”
For fiscal year 2013, the Company’s weighted average diluted share count was 40.6 million, a reduction of 2.5 million shares from fiscal year 2012’s year-end diluted share count of 43.1 million. This is the result of repurchasing close to one million shares during the course of the year at an average price of $14.90 and the accretive effect of the retirement of the Company’s convertible debt. Entering FY2014, the Company’s diluted share count was 38.6 million.
For fiscal 2014, the Company currently expects consolidated sales in the range of $2.175 to $2.225 billion. The Company expects to see continued strength in its supply chain and repair businesses in fiscal 2014 given its strong position in the growing global outsourced maintenance supply chain market. While defense budgets are expected to remain under pressure, the Company sees ongoing global demand for its low cost solutions, products and services. The Company’s Technology Products segment is expected to achieve revenue stability in fiscal 2014, while focusing on operating efficiencies and innovations in lightweight solutions for the marketplace. The Company believes it will continue to improve its operating margins both as a result of mix improvement and the implementation of initiatives designed to enhance efficiency. The Company currently expects full year diluted earnings per share to be in the range of $2.00 to $2.05.
Conference Call Information
AAR will hold its quarterly conference call at 3:45 p.m. CDT on July 25, 2013. The conference call can be accessed by calling 866-802-4322 from inside the U.S. or 703-639-1319 from outside the U.S. A replay of the conference call will be available by calling 888-266-2081 from inside the U.S. or 703-925-2533 from outside the U.S. (access code 1618779). The replay will be available from 7:45 p.m. CDT on July 25, 2013, until 11:59 p.m. CDT on August 1, 2013.
AAR is a global aviation and aerospace company that employs more than 6,000 people in 17 countries. Based in Wood Dale, Illinois, AAR supports commercial, government and defense customers through two operating segments: Aviation Services and Technology Products. AAR’s services include inventory management and parts distribution; aircraft maintenance, repair and overhaul; and expeditionary airlift. AAR’s products include cargo systems and containers; mobility systems and shelters; advanced aerostructures; and command and control systems. More information can be found at www.aarcorp.com.