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Aar Corp has a market cap of $761.75 million; its shares were traded at around $19.27 with a P/E ratio of 10.45 and P/S ratio of 0.43. The dividend yield of Aar Corp stocks is 1.59%. Aar Corp had an annual average earning growth of 10.8% over the past 5 years.
Highlight of Business Operations:During the first nine months of fiscal 2012, sales to global government and defense customers increased 2.0% compared to the prior year and for the nine months ended February 29, 2012 represented 46.8% of consolidated sales. Defense funding is currently facing pressure due to U.S. budget deficit challenges. In August 2011, Congress enacted the Budget Control Act (BCA) of 2011 which reduces defense spending by $487 billion over a ten-year period starting in fiscal 2012. Under the BCA, an automatic sequestration process was triggered when the Super Committee, a committee of twelve Congressmen, failed to agree on a deficit reduction plan for the U.S. federal budget. The sequestration is scheduled to commence on January 2, 2013, absent legislative or other remedial action. Of the $1.2 trillion in reduced spending required by sequestration over the ten-year period beginning in fiscal year 2013, approximately $50 billion per year would be borne by the DoD. Whether or not sequestration goes into effect, we expect the defense budget to be reduced. Although there may be opportunities for those business units within our Supply Chain and Maintenance, Repair and Overhaul segments that support the DoD, as a result of defense spending reductions, we expect our businesses that support the DoD within our Structures and Systems segment may be adversely affected.
In the Aviation Supply Chain segment, sales increased $14,252 or 11.9% compared to the prior year. The increase in sales was the result of strength at our parts supply businesses, which continues to benefit from investments made in assets to support commercial customers. Gross profit in the Aviation Supply Chain segment increased $5,740, or 27.6% and the gross profit margin percentage increased to 19.8% from 17.3% in the prior year due to a favorable mix of inventories sold.
In the Government and Defense Services segment, sales decreased $13,620 or 9.2% compared to the prior year. The sales decrease reflects a reduction in activity under one of the Company’s performance-based logistics program, as well as lower sales at AAR Airlift due to unfavorable aircraft availability. Gross profit decreased $6,497 or 25.3%, and the gross profit margin percentage declined to 14.3% from 17.4% due to lower volume in our defense logistics business, lower volume at AAR Airlift, and the impact of aircraft availability as compared to last year.
In the Aviation Supply Chain segment, sales increased $98,816 or 28.6% compared to the prior year due to the sale of four aircraft for approximately $49,000 from our aircraft sales and leasing portfolio and strength at our parts supply businesses, which benefited from the improved commercial airline environment and recent investments of assets. Gross profit in the Aviation Supply Chain segment increased $19,066 or 31.4%, and the gross profit margin percentage increased to 18.0% from 17.6% in the prior year primarily due to the mix of inventories sold. During the second quarter, we acquired Airinmar Holdings Limited (“Airinmar”), a leading provider of repair management services. Airinmar operates as part of the Aviation Supply Chain segment and the impact of this acquisition on sales and earnings was negligible.
In the Government and Defense Services segment, sales increased $15,032 or 3.7% compared to the prior year. The sales increase primarily reflects growth in program business at the Company’s defense logistics business. Gross profit decreased $2,306 or 3.2% and the gross profit margin percentage decreased to 16.5% from 17.7% in the prior year reflecting lower margins in the airlift business due to reduced aircraft availability.
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