AAR (AIR) Q4 2008 earnings summary

Executive summary

• FY08 sales rose 30.5% to $1,384,919, with growth across all four segments; operating income increased 41.1% to $134,518.

• Net income was $75,144, or $1.76 diluted EPS; growth reflected higher sales and gross profit, partly offset by higher SG&A and interest expense.

• Results benefited from market-share gains, acquisitions, defense demand and outsourced maintenance and parts support; airline capacity cuts and tight credit threatened future growth.

Financial highlights

• Revenue was $1,384,919 vs. $1,061,169 in FY07; gross profit rose to $264,072 from $184,147.

• Operating income reached $134,518 vs. $95,366; income from continuing operations was $75,745 vs. $59,447.

• Net income was $75,144 vs. $58,660; diluted EPS was $1.76 vs. $1.40, including discontinued-operation losses of $601 in FY08.

• Cash from operations was $16,926; cash and equivalents ended FY08 at $109,391, with working capital of $564,932.

Outlook and guidance

• U.S. carriers’ announced capacity reductions were expected to affect 10–15% of the fleet, mainly older narrow-body and regional aircraft, beginning largely in fall 2008.

• Management expected carriers to continue outsourcing maintenance and support; it saw longer-term opportunities in defense logistics and mobility products.

• A400M first shipments slipped from H2 FY08 to late FY09; projected program revenue exceeded $300,000 through FY15, based on Airbus sales projections.