AAR: AAR Corp (AIR) Q3 2025 Earnings Call Highlights: Record Sales and Robust Growth in Key Segments

In This Article: Revenue: $678 million, a 20% increase year over year, setting a new third-quarter sales record. Commercial Sales: Increased 22% year over year, making up 72% of total sales. Government Sales: Increased 15% year over year, comprising 28% of total sales. Adjusted EBITDA: $81.2 million, a 39% increase from the same quarter last year. EBITDA Margin: Increased to 12% from 10.3% in the previous year. Adjusted Earnings Per Share (EPS): Grew 16% to $0.99 from $0.85 in the same period last year. Net Debt Leverage: Reduced to 3.06x from 3.17x in the prior quarter. Parts Supply Sales: $271 million, a 12% increase year over year. Repair and Engineering Sales: $216 million, a 53% increase year over year. Integrated Solutions Sales: $163 million, a slight decrease of 1.6% year over year. Net Interest Expense: $18.1 million for the quarter. Effective Tax Rate: Expected to be approximately 30% for Q4. Warning! GuruFocus has detected 9 Warning Signs with AIR. Release Date: March 27, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript . Positive Points AAR Corp ( NYSE:AIR ) reported record third-quarter sales of $678 million, a 20% increase year over year. Adjusted EBITDA grew by 39% to $81.2 million, with margins improving from 10.3% to 12%. The Parts Supply segment saw a 12% increase in sales, driven by significant growth in new parts distribution activities. The Repair and Engineering segment experienced a 53% increase in sales, with adjusted EBITDA growing by 110%. AAR Corp ( NYSE:AIR ) reduced its net debt leverage from 3.17x to 3.06x, indicating strong financial management and positioning for future investments. Negative Points USM activities showed modest year-over-year growth but fell short of expectations due to timing issues with engine inductions. The Integrated Solutions segment experienced a slight decrease in sales by 1.6% due to a net decline in government activities. The divestiture of the Landing Gear business is expected to be only slightly accretive to margins, indicating limited immediate financial benefit. There were lower efficiencies and throughput in the Repair and Engineering segment due to the ramp-up of headcount and integration activities. The Miami hangar expansion faced delays due to permitting issues, potentially impacting future capacity growth. Q & A Highlights Q : Can you elaborate on the current state of the USM market and your expectations for its performance in the upcoming quarters? A : John Holmes, CEO, explained that the USM market experienced a temporary decline due to maintenance deferrals by end customers, which led to lower demand for engine materials. However, he expects this to be temporary as the deferred maintenance will eventually be completed. Additionally, more whole assets and parts packages are coming to market, which positions AAR well for future investments. Q : Are you seeing any impact from capacity growth concerns among US and European airlines on your business? A : John Holmes, CEO, stated that despite concerns about capacity growth, AAR has not observed any meaningful decline in demand for its services. The company remains focused on demonstrating its value to retain business even if capacity reductions occur. Q : How will the divestiture of the Landing Gear business affect your EBITDA margins? A : Sean Gillen, CFO, noted that the Landing Gear business is about breakeven to slightly positive on operating profit. Its divestiture will be accretive to margins, but not significantly so. The guidance for Q4 assumes Landing Gear is included in results for one month. Q : Can you provide an update on the Trax business and its potential for margin expansion? A : John Holmes, CEO, highlighted that Trax is AAR's highest margin business and recent deals with Cathay Pacific and Singapore Airlines will contribute to margin expansion. The company has a strong pipeline of potential customers for Trax, particularly in the Asia Pacific region. Q : What are the prospects for defense opportunities, particularly regarding USM parts with the Department of Defense? A : John Holmes, CEO, mentioned that while there hasn't been a notable increase in USM sales to the government yet, there is optimism due to ongoing discussions and the current environment for trying new things at scale. Any activity in this area would be incremental to current results. For the complete transcript of the earnings call, please refer to the full earnings call transcript . This article first appeared on GuruFocus .