http://www.morningstar.com/earnings/43336939-aar-corp-air-q1-2013.aspx

AAR Corp AIR
Q1 2013 Earnings Call Transcript

Transcript Call Date 09/20/2012

Operator: Good day, ladies and gentlemen, and welcome to the AAR Corp. First Quarter Fiscal Year 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to turn the call over to your host (Greg Dellinger). Please go ahead.

Greg Dellinger - Director of Recruiting: Thank you, Stephanie. Good morning, ladies and gentlemen, and thank you for joining our first quarter fiscal year 2013 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, 2012. 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 very much, Greg, and good morning today. Joining me in Chicago in our office at corporate headquarters is Tim Romenesko and Rick Poulton. Yesterday afternoon we reported results for our fiscal year 2013 first quarter. We are pleased with our performance as both sales and earnings per share came in at the top end of the previously announced guidance.

As you know, we've been very focused on generating cash and during the first quarter, cash from operations was a strong $33 million. We repurchased 475,000 shares on the open market for $6.1 million and we also repurchased 13 million face value of our convertible bonds at attractive terms. We also reported improvement in both our consolidated gross profit and operating profit margins and Rick will provide more detail around margin performance in his prepared remarks.

During the quarter we continued to win new business and expand relationships with existing customers. When excluding the aircraft sales from the prior year, organic sales growth to commercial customers was 13%, far outpacing the overall growth rate in the airline industry. We saw strength in our aviation services businesses which included a strong summer quarter in our airframe maintenance facilities. Sales increased significantly over the prior year as we continue to execute against our one MRO strategy. We're in the process of opening a four-line airframe maintenance facility in Duluth, Minnesota and have secured our first customer with work expected to begin in December. In addition to opening the Duluth facility, we were selected by other (unnamed) airline for additional work in other facilities.

Our parts supply businesses reported strong top line growth, while experiencing reduced margins due to lower margin program activity. We had significant improvement to airlift due to higher operational readiness and increased flying activity. Our team has done a good job – actually a great job with their model fix ‘em and fly ‘em and are filling a vital need for our customer. We received early indications from the customer of their interest in exercising options for large rotary wing contracts which come due November 1 and December 1.

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