Why AAR Corp. (NYSE: AIR) stock is soaring today

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AAR Corp. (NYSE: AIR) stock surged over 7.4% in the after-hours session on July 21st, 2020 (Source: Google finance). Despite weak second quarter of 2020 performance, the firm believes that its structural changes to their portfolio, would enhance its margins going forward. The firm took several steps to cut fixed cost and overheads including closing Goldboro and Duluth facilities as well as their current restructuring under performing contracts and product lines, primarily in their commercial programs business. These actions led to a predominantly non-cash charge of $27.9 million which is recorded in the P&L a reduction in revenue of $7.5 million, an increase in the cost of sales of $15.7 million, an increase in SG&A of $2.8 million and a loss from joint ventures of $1.9 million. The firm made an agreement with BASF to distribute and maintain certain aircraft cabin air quality improvement products, as well as $125 million sole source contract with the U.S. Air Force to produce and repair 463L cargo pallets. The group also made an extension and meaningful expansion of their agreement with Unison Industries, a subsidiary of GE Aviation. The agreement also includes repair services and is valued at more than $1 billion over 11 years.

For full year 2020, their sales rose 1% from $2.05 billion to $2.07 billion while adjusted diluted earnings per share, from continuing operations, fell 12% from $2.44 per share to $2.15 per share. For the fourth quarter of 2020, the sales fell 26%, from $563 million to $417 million. Adjusted diluted earnings per share from continuing operations fell 62% from $0.68 per share to $0.26 per share. Gross profit margin fell to 8.7% during the second quarter of 2020 as compared to 16.8% in the prior year quarter. Excluding the charges gross profit margin fell to 14.1% as compared to 17.0% in the prior year period due to $0.9 million of adjustments in the prior year period related to facility repositioning costs.

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