Strong Growth in Parts Supply and Strategic …

This article first appeared on GuruFocus.

• Total Adjusted Sales: $740 million, a 13% year-over-year increase.

• Organic Sales Growth: 17% excluding the sale of landing gear.

• Adjusted EBITDA: $86.7 million, an 18% increase with margins rising to 11.7% from 11.3%.

• Adjusted Operating Income: $71.6 million, a 21% increase with margins improving to 9.7% from 9.1%.

• Adjusted Diluted EPS: Increased 27% to $1.08 from $0.85.

• Parts Supply Sales: Grew 27% to $318 million.

• Parts Supply Adjusted EBITDA: $43.8 million, a 34% increase with margins rising to 13.8% from 13.1%.

• Repair and Engineering Sales: Decreased 1% to $215 million, with organic growth of 8% excluding landing gear impact.

• Integrated Solutions Sales: Increased 10% to $185 million.

• Net Debt Leverage: Increased to 2.82 times from 2.72 times.

• Inventory Investment: Over $50 million to support future growth.

• Aerostrat Acquisition: $15 million investment.

Release Date: September 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

• AAR Corp (NYSE:AIR) reported a significant 17% organic adjusted sales growth in the first quarter of fiscal year 2026.

• The company achieved a 27% organic growth in its Parts Supply segment, driven by strong performance in new parts distribution.

• AAR Corp (NYSE:AIR) successfully expanded its software capabilities with the acquisition of Aerostrat, enhancing its Trax software solutions.

• The company maintained consistent cost discipline, reducing SG&A year over year, and improved operating efficiencies.

• AAR Corp (NYSE:AIR) reported a 27% year-over-year increase in adjusted diluted EPS, reaching $1.08 from $0.85 in the same quarter last year.

• Sales in the Repair and Engineering segment decreased by 1% year over year, although organic sales growth was 8% when excluding the impact of the Landing Gear divestiture.

• The adjusted operating margin for Integrated Solutions decreased from 6.2% to 5.9% despite a 10% increase in sales.

• The USM business, although showing growth, experienced depressed margins due to tight supply, affecting overall profitability.

• Net debt leverage increased slightly from 2.72 times to 2.82 times, driven by organic and inorganic investments.

• The company faces challenges in the longer-term agreements and cross-selling opportunities within the Repair and Engineering segment, which may take time to materialize.

Q: Can you explain the reason behind the increased full-year expectation to nearly 10% growth? A: John Holmes, CEO, stated that the Parts Supply segment is leading the way with a strong quarter of 27% organic growth. The new parts distribution market is performing well, and the wins in this area are driving the improved outlook for the year.

Q: What is the pipeline for new distribution agreements, and are you taking market share or entering new markets? A: John Holmes, CEO, explained that most recent wins have been about taking market share. The exclusive distribution model is resonating with OEMs, and as AAR continues to win more business, more opportunities are opening up.

Q: Do you still expect to outgrow the market within distribution at a mid-teens rate? A: John Holmes, CEO, confirmed that they maintain the outlook for distribution growth and expect to continue growing above the market rate.

Q: Can you discuss the cross-selling opportunities within Repair and Engineering for component services? A: John Holmes, CEO, mentioned that they are in the early stages of leveraging their heavy maintenance leadership to drive volume into component repair shops. The integration work is complete, and the focus is now on executing the cross-selling strategy, with a long pipeline of opportunities.

Q: Has the trend of increased USM sales continued, and how is the visibility on whole assets coming to market? A: John Holmes, CEO, noted that there was a loosening of supply in the fourth quarter, which continued into the first quarter, driving growth in the USM business. The environment remains dynamic, but they are encouraged by the additional assets coming to market.

Q: What is the opportunity for Parts Supply margins if more USM becomes available? A: John Holmes, CEO, explained that while distribution margins are performing well, USM margins have been depressed due to tight supply. As more supply comes onto the market, they expect margins to expand over time.

Q: Are there agreements in place to retain key employees from the Aerostrat acquisition? A: John Holmes, CEO, confirmed that there is a three-year earn-out associated with the transaction for key team members, providing financial incentives to stay. The goal is to integrate them into the AAR and Trax teams for growth.

Q: Can you discuss your exposure to engine-related aftermarket services? A: John Holmes, CEO, stated that AAR has significant engine market exposure, with 80% of USM parts business being engine parts. They also distribute engine-related accessories and have significant engine-related capabilities in component services.

Q: How is the progress on making Trax into an e-commerce marketplace? A: John Holmes, CEO, mentioned that they are investing in the marketplace initiative, seeing significant synergy between Trax’s data and offering parts and repair solutions. Announcements on progress are expected in the first half of 2026.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.