AAR has reported third quarter Fiscal Year 2022 consolidated sales of $452.2 million and income from continuing operations of $22.6 million, or $0.63 per diluted share. For the third quarter of the prior year, the company reported sales of $410.3 million and income from continuing operations of $31.1 million, or $0.87 per diluted share. Adjusted diluted earnings per share from continuing operations in the third quarter of Fiscal Year 2022 were $0.63 compared to $0.37 in the third quarter of the prior year. The prior year quarter included net pretax adjustments of $23.4 million, or $0.50 per share, primarily related to the exclusion of CARES Act payroll support.

Consolidated third quarter sales increased 10% over the prior year quarter. Consolidated sales to commercial customers increased 28% over the prior year quarter due to the recovery in the commercial market from the impact of COVID-19. AAR’s consolidated sales to government customers decreased 8% primarily related to the level of program activity and delays in pallet orders in its Mobility business.

Sales to commercial customers were 59% of consolidated sales compared to 51% in the prior year’s quarter primarily reflecting the recovery in the commercial market from the impact of COVID-19.

“During the quarter, we drove continued sequential improvement in our government and commercial businesses. In our government business, we were able to mitigate the impact of the Afghanistan drawdown and in commercial, we saw demand in our parts activities accelerate throughout the quarter as the impact from the Omicron variant subsided. Furthermore, our largest commercial customers remain optimistic about the recovering demand for business and leisure travel and we expect this momentum to continue,” said John M. Holmes, President and Chief Executive Officer of AAR CORP.

Gross profit margins were 17.8% in the current quarter compared to 21.0% in the prior year quarter which included the favourable impact of CARES Act payroll support.  Adjusted gross profit margin increased from 16.1% to 17.3%, primarily due to the favourable impact from AAR’s actions to reduce costs and improve operating efficiency.

Selling, general and administrative expenses increased from $44.9 million to $48.9 million mainly due to digital and other investments to support the volume growth.  Selling, general and administrative expenses decreased as a percent of sales from 10.9% to 10.8% primarily related to the growth in sales.

Operating margins were 6.7% in the current quarter compared to 9.7% in the prior year quarter which included the favorable impact of CARES Act payroll support.  Adjusted operating margin increased from 5.0% to 6.7%, as a result of the actions AAR took to improve operating efficiency as well as the recovery in commercial sales.  Sequentially, adjusted operating margin increased from 6.1% in the second quarter to 6.7% in the current quarter primarily due to improved performance across commercial activities.

During the quarter, AAR announced a ten-year extension of component maintenance, repair, and overhaul contract with International Aerospace Management Company (IAMCO), which is responsible for depot-level maintenance for the NATO E-3A AWACS aircraft fleet.

Subsequent to the end of the quarter, AAR announced an exclusive distribution agreement with Collins Aerospace’s Goodrich De-Icing & Specialty Heating Systems business. Under the agreement, AAR will provide airlines, business jet and other aircraft operators as well as MROs globally with de-icers and supporting products.

Net interest expense for the quarter was $0.6 million compared to $1.0 million last year. Average diluted share count increased from 35.5 million to 35.7 million in the current year quarter. AAR also repurchased 0.5 million shares for $20.2 million in conjunction with the $150 million share repurchase program it announced earlier in the quarter.

Cash flow provided by operating activities from continuing operations was $16.2 million during the current quarter. Excluding AAR’s accounts receivable financing program, cash flow provided by operating activities from continuing operations was $18.4 million in the current quarter. At February 28, 2022, net debt was $63.9 million and net leverage was 0.43x.

Holmes concluded, “Early in the pandemic, we took a series of actions to better position the Company for margin improvement as the industry recovered.  We have now delivered our sixth straight quarter of adjusted operating margin expansion and our margins are exceeding pre-pandemic levels.  We are extremely proud of this progress particularly since we have not yet seen a complete recovery in commercial sales.  We expect our improved operating performance combined with the strength of our balance sheet to allow us to continue generating shareholder value by investing in our parts, MRO and government activities, pursuing strategic M&A, and returning capital to shareholders.”