AAR Corp. (NYSE: AIR) stock falls on margins pressure

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AAR Corp. (NYSE: AIR) stock fell over 6.7% on 26th September, 2019 (As of 12:59 pm GMT-4; Source: Google finance). For the first quarter of FY 20, Gross margin was 15.1% versus 15.3% in the prior year period, mainly due to Expeditionary Services. Gross Margin within Aviation Services, however, expanded from 15.3% to 15.6%. The company’s net interest expense was $2.1 million compared to $1.6 million last year.

Gross profit rose 14.6% to $81.6 million during the first quarter. During the first quarter, the cash flow used from operating activities from continuing operations was of $30 million, which had increased $20 million from the prior year, excluding the impact of the accounts receivable financing program, which was flat in this quarter.

The cash used in this quarter was mainly due to investments in inventory to support the part supply activities as well as some normal seasonality in MRO. Further, during the quarter, AIR had signed an extension of our revolving credit facility, which will add an additional three years to the term and $100 million of borrowing capacity.

AAR in the first quarter of FY 20 has reported the adjusted earnings per share of 57 cents, beating the analysts’ estimates for the adjusted earnings per share of 52 cents, according to Zacks Investment Research. The company had reported the adjusted revenue growth of 16 percent to $541.5 million in the first quarter of FY 20, beating the analysts’ estimates for revenue of $498.4 million. This includes $73.4 million or 17% rise in Aviation Services revenues, due to execution on new contract awards and strong demand in the part supply activities. The C-40 award contributed about $19 million of sales in the first quarter.

Meanwhile, during the quarter, the company bagged a $118 million contract from the Naval Air Systems Command in support of the US Marine Corps for the procurement, modification, and delivery of two C-40 aircraft. The company had also announced a new agreement with Mitsubishi Heavy Industries Aero Engines for supplying PW4000 engine parts in support of their engine overhaul business. This is AIR’s largest commercial contract in Japan to-date. Subsequent to the end of the first quarter 2020, the company had also announced two contract awards related to the parts supply activities. The company was selected as the main distributor for Leach International Corporation, which is a subsidiary of Transdigm.

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