AAR Corp (NYSE:AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, stock fell 3.79% (As on September 24, 11:15:25 AM UTC-4, Source: Google Finance) though the company reported better-than-expected first quarter results, driven by robust demand for its aviation services across both commercial and government segments. The company drove 26% organic growth in the new parts distribution activities, had strong operational performance in our hangars and saw a return to growth in the government business. The quarter also included meaningful contributions from Trax, and the recent Product Support acquisition continues to exceed the expectations. Adjusted operating margin increased from 7.3% in the prior year quarter to 9.1% in the current year quarter. The improved adjusted margin over the prior year is primarily driven by the favorable contribution from the recently acquired Product Support business as well as improved execution. Cash flow used in operating activities was $18.6 million during the current quarter compared to $18.7 million in the prior year quarter. As of August 31, 2024, the net debt was $942.7 million and the net leverage, pro forma for the last twelve months adjusted EBITDA of the Product Support business was 3.31x.

AIR in the first quarter of FY 25 has reported the adjusted earnings per share of 85 cents, beating the analysts’ estimates for the adjusted earnings per share of 82 cents. The company had reported the adjusted revenue growth of 20 percent to $661.7 million in the first quarter of FY 25, beating the analysts’ estimates for revenue of $641.94 million. The consolidated sales to commercial customers and to government customers both increased 20% over the prior year quarter.  These increases were primarily due to the acquisition of the Product Support business and organic growth.  Sales to commercial customers were 71% of consolidated sales in both the current and prior year quarters.

AAR Corp. expects continued growth across both commercial and government businesses, citing exceptionally strong demand for its services. Management anticipates further margin expansion as it integrates recent acquisitions and drives growth in higher-margin activities.

On the other hand, during and subsequent to the quarter, the company received multiple new contract awards, including five-year firm fixed price IDIQ contract with an aggregate ceiling value of approximately $1.2 billion from the U.S. Navy’s Naval Air Systems Command (NAVAIR) to perform engine depot maintenance and repair for its P-8A Poseidon Aircraft fleet, five-year firm fixed price IDIQ contract with an aggregate ceiling value of approximately $1.2 billion by NAVAIR to perform P-8A Poseidon depot airframe maintenance and depot field team support for the U.S. Navy, government of Australia, and foreign military sales customers and multiple, long-term distribution agreements with Ontic that expand the support across various government and commercial platforms