AAR (AIR) Q1 Earnings call transcript Sep 23, 2025

In a confident and optimistic tone, AAR Corporation's leadership team led by CEO John Holmes and CFO Sean Gillen, discussed the company's solid first quarter performance, highlighting its strategic focus and growth opportunities. The call, which came with forward-looking statements and non-GAAP financial information, revealed a company that is well-positioned for growth in its key segments, despite challenges in some areas.

Strong Performance and Strategic Focus

The company reported quarterly sales of $662 million, up 20% year-over-year, driven by growth in each of its three main operating segments: parts supply, repair and engineering, and integrated solutions. AAR's focus on its strategic initiatives and investments in these segments has resulted in significant organic growth and operational efficiency, leading to a 180-basis-point increase in adjusted operating margins to 9.1%.

The company's commercial sales increased 20% across all three core segments, with distribution sales experiencing double-digit growth. The government sales also grew by 20%, driven by a recovery in program activities and increased order volume. AAR's recent acquisitions, such as TRAX and product support, have been instrumental in boosting sales and margins.

Challenges and Opportunities in Parts Supply

While the parts supply segment, AAR's largest and most profitable, experienced a decline in sales in the USM activity due to the lack of whole assets, the company remains optimistic about its future. The current dynamics in the aviation aftermarket, including elevated levels of air travel and an aging fleet, are driving demand for AAR's aftermarket services. The company is focused on expanding its capabilities in this segment, including in-sourcing repair work and integrating acquisitions like Triumph Product Support.

Innovation and Growth in Repair and Engineering

The repair and engineering segment, which is critical for the company's growth, saw a 58% increase in sales, driven by strong demand for MRO services and efficiency improvements. AAR's recent acquisition of Triumph Product Support is expected to yield significant cost synergies and value, with the company on track to achieve its target of $10 million in cost savings.

Integrated Solutions: Expansion and Innovation

AAR's integrated solutions segment, which includes commercial and government offerings, experienced an 8% increase in sales, driven by strong demand for its TRAX offering and new contract wins. The company's focus on innovation and customer satisfaction is paying off, with significant new business wins and customer implementations.

Outlook and Future Growth

Looking ahead, AAR is confident in its ability to capitalize on the strong demand for its services and continue its growth trajectory. The company expects sales growth of 18% to 22% in the second quarter, with adjusted operating margins similar to the first quarter. AAR's strategic investments in efficiency, differentiated capabilities, and market expansion are expected to drive higher margins and shareholder value.

Conclusion

AAR's first quarter earnings call underscores the company's strong financial performance, strategic focus, and innovative approach to growth. The company's investments in its three main operating segments, coupled with its strategic acquisitions and operational efficiency initiatives, are positioning it for continued growth and profitability. Despite challenges in some areas, particularly in the USM segment, AAR remains optimistic about its future and is well-positioned to capitalize on the opportunities in its markets.