Q2 2012 Earnings Call Transcript

Transcript Call Date 12/16/2011

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the AAR Corporation Second Quarter Fiscal 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

I'd now like to turn the conference to (Greg Dellinger). Sir, you may begin.

Greg Dellinger - Director of Recruiting: Thank you, Tammie, and good morning, ladies and gentlemen, and thank you for joining our second quarter fiscal year 2012 earnings conference call. Before we begin, I would like to remind you that comments made this morning may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

We ask that you refer to the disclaimer contained in our news release as well as the risk factors section of the Company's Form 10-K for the fiscal year ended May 31, 2011. In providing forward-looking statements, the Company assumes no obligation to provide updates to reflect future circumstances or the occurrence of anticipated or unanticipated events.

Now, at this time, I would like to turn the call over to our Chairman and Chief Executive Officer, David Storch.

David P. Storch - Chairman and CEO: Thank you, Greg, and good morning, everyone. Joining me today in Chicago is Tim Romenesko, our President and Chief Operating Officer; Rick Poulton, our Chief Financial Officer.

We reported our second quarter fiscal year 2012 results yesterday afternoon, and I hope by now that you've had a chance to review our press release. Sales for the second quarter were $475.9 million, up 8% compared to the same period a year ago and income from continuing operations was $17.5 million or $0.43 per diluted share.

As discussed in the release, these results include $1.4 million of transaction-related expenses for the acquisitions announced during the second quarter. Excluding the impact of these expenses, diluted earnings per share was $0.45.

In the second quarter, we saw a growth in both the commercial and government defense services markets. Sales to commercial customers increased 11% versus second quarter of last year and sales to government and defense customers increased 5%.

The commercial sales increase was led by growth in our parts supply business and was driven largely by investments in assets to support our customers' spare parts requirements. While sales to the MRO segment were down year-over-year due to an engineering service contract last year, we did experience sales growth at our airframe MRO centers during the period and saw a significant gross margin improvement in the segment, with margins increasing 370 basis points on a sequential basis and 230 basis points over last year. This improvement was due to operational efficiencies and a more favorable mix. We expect continued strength in our MRO segment as our hangers remain generally full through the end of the fiscal year, and as we ramp a new engineering service contract in the third quarter.

During the second quarter, we made further progress working down our aircraft portfolio. Consistent with plans we have discussed over the last several quarters, we sold three aircrafts, and this leads us with a portfolio of 23 aircraft at quarter end. During the third quarter, we expect to sell additional aircraft from our joint venture portfolio at modest gains.

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