- Total Sales Growth: 16% YoY to $795 million, driven by 29% growth in the parts supply segment.
- Strategic Acquisitions: Completed ADI ($108M) and HAYCO Americas ($77M), with Aircraft Reconfig Technologies ($35M) pending Q4 closure.
- Adjusted EBITDA & EPS: EBITDA up 23% to $96.5 million; adjusted diluted EPS rose 31% to $1.18.
- Future Sales Guidance: Q3 growth of 20-22% and full-year growth of 17%, with organic growth of 11% annually.
- Net Debt Leverage: Reduced to 2.49x, within the target range of 2.0-2.5x, reflecting disciplined capital management.
Strategic Acquisitions and Growth Initiatives
The company completed two strategic acquisitions during the quarter: ADI, a leading distributor of electronic components and assemblies, for $108 million, and HAYCO Americas, extending its leadership position in airframe heavy maintenance, for $77 million. A third acquisition, Aircraft Reconfig Technologies, is expected to close in the fourth quarter for $35 million. These acquisitions are expected to drive growth and expand the company's capabilities in the aircraft maintenance and repair market.
Segment Performance and Outlook
The parts distribution segment saw significant growth, with sales up 32% organically, driven by both commercial and defense customers. The heavy maintenance business has made significant margin gains since coming out of COVID and is now a low double-digit margin business with potential to expand. The company expects to punch above the 10% adjusted operating margin level over time, with the HAYCO integration being a near-term dilution area.
Valuation and Growth Expectations
With a P/E Ratio of 35.72 and an EV/EBITDA of 27.11, the market is pricing in significant growth expectations. Analysts estimate next year's revenue growth at 10.7%. The company's ROIC of 7.45% and ROE of 7.23% indicate a decent return on capital, but the Net Debt / EBITDA ratio of 6.12 suggests a relatively high leverage. As the company continues to execute on its growth strategy, investors will be watching to see if AAR Corp can meet or exceed these expectations.
Margin Expansion and Integration
John Holmes, the company's management, noted that the current quarter is a low point due to the HAYCO acquisition, but margins will expand to low double-digit and exceed previous levels. The component repair business has mid to high teens operating margins, and the company plans to drive more volume to it. For HAYCO, margin improvement will come from a mix of contract realignment and cost rationalization, with significant revenue reductions to establish efficient processes.