Aircraft leasing and maintenance firm AAR (click ticker for report: ) reported strong first quarter results. Revenue surged 13% year-over-year to $550.5 million, slightly above consensus estimates. Earnings ticked-up nearly 10% to $0.45 per share, better than the consensus estimate that called for earnings to fall.
Due to a favorable product mix driven by acquisitions, gross margins increased 80 basis points year-over-year to 16.4%. SG&A (as a percentage of sales) increased slightly year-over-year to 9.7%; however, last year’s expense was irregularly low as 2 aircraft sales were factored into the sales mix. In fact, net of aircraft sales, net revenues actually increased 43% year-over-year. Strength was fairly broad-based, but Structures & Systems, aided by acquisitions, grew revenues 80% and profits 133%. Maintenance, Repair & Overhaul revenues climbed 13% to $105.5 million, leading operating profits to jump 30% to $13 million. This culminated in free cash flow of $22 million, leading the company to repurchase $6.1 million worth of its shares (475,000) and retire $13 million of convertible debt.
Going forward, the firm raised its full-year earnings guidance range to $1.60 to $1.70 from $1.55 to $1.65. We remain very confident in the firm’s ability to grow earnings through the course of fiscal year 2013. We continue to like the aerospace supply chain, as we hold Astronics (click ticker for report: ), EDAC Technologies (click ticker for report: ), and Precision CastParts (click ticker for report: ) in the portfolio of our Best Ideas Newsletter.