AAR, which provides aviation services to commercial and government operators, MROs, and OEMs, has reported first quarter fiscal year 2023 consolidated sales of $446.3 million and income from continuing operations of $22.3 million, or $0.62 per diluted share.
For the first quarter of the prior year, AAR reported sales of $455.1 million and income from continuing operations of $11.2 million, or $0.31 per diluted share. Adjusted diluted earnings per share from continuing operations in the first quarter of fiscal year 2023 were $0.61, compared to $0.52 in the first quarter of the prior year.
Consolidated first quarter sales decreased 2% from the prior year’s quarter. Consolidated sales to commercial customers increased 10% over the prior year quarter, primarily due to further recovery in the commercial market. Consolidated sales to government customers decreased 19% due to the natural completion of certain government programs, such as AAR’s Afghanistan contracts.
Sales to commercial customers were 66% of consolidated sales, compared to 59% in the prior year’s quarter, primarily reflecting the natural completion of certain government programs as well as the continued recovery in the commercial market.
“During the quarter, we drove strong commercial performance as recent new parts distribution contracts started to mature and our hangars remained largely full throughout the summer. Also in the quarter, our government business saw the full impact of the wind down in Afghanistan as well as the completion of certain other programs. As recent awards, such as our USAFE contract, ramp up over time and we win new contracts, we expect growth to return in our government business,” said John M. Holmes, President and Chief Executive Officer of AAR.
Gross profit margins were 18.4% in the current quarter, compared to 14.2% in the prior year quarter. Adjusted gross profit margin increased from 16.1% to 18.1%, primarily due to the favourable impact from AAR’s actions to reduce costs and improve operating efficiency.
Selling, general, and administrative expenses increased from $49.3 million in the prior year quarter to $50.1 million. As a percentage of sales, selling, general, and administrative expenses were 11.2% for the quarter, compared to 10.8% last year.
Operating margins were 7.0% in the current quarter, compared to 3.3% in the prior year quarter. Adjusted operating margin increased from 5.5% to 6.9% as a result of the actions AAR took to improve operating efficiency as well as the recovery in commercial sales. Sequentially, adjusted operating margin remained relatively consistent at 6.9% in the current quarter and 7.0% in the prior year quarter.
Holmes concluded, “We are very proud to have delivered another quarter of year over year margin improvement. We also continued to generate cash even while making increased inventory investments in our parts activities to support future growth. Our pipeline of both commercial and government opportunities remains full and we will utilize the strength of our balance sheet to secure new business and continue to generate shareholder value through organic and inorganic investments.”