AAR Corp surges 11% on strong Q3 earnings, raises sales outlook
Aerospace supplier raises full-year sales guidance to 19% growth as commercial aviation demand drives robust performance
AAR Corp shares surged 11.1% to $119.72 on Wednesday after the aerospace and defense supplier reported better-than-expected quarterly results and raised its full-year sales forecast, signaling sustained strength in commercial aviation aftermarket demand.
The Wood Dale, Illinois-based company reported fiscal third-quarter revenue of $845.1 million, up 25% from the prior year and exceeding analyst expectations of $812.5 million. Adjusted diluted earnings per share rose 26% year-over-year to $1.25, surpassing the consensus estimate of $1.15, while GAAP EPS reached $1.71.
Trading volume reached more than 1 million shares, significantly above the stock's average 400,000 to 600,000 daily range, as investors responded to the strong performance. The rally brought AAR within striking distance of its 52-week high of $121.64, marking a remarkable recovery from the stock's 52-week low of $46.51.
The company raised its fiscal 2026 sales growth guidance to approximately 19% from the previous outlook of "approaching 17%", with organic sales growth now expected around 12%, up from "approaching 11%". For the fourth quarter, management projects total sales growth between 19% and 21%, with adjusted operating margins anticipated between 10.2% and 10.5%.
"We delivered an outstanding quarter with 25% total sales growth, including 14% organic adjusted sales growth, supported by robust performance across all parts, repair, and software platform activities," said John M. Holmes, AAR's Chairman, President and CEO. Holmes noted the company expects continued margin expansion through a shift toward higher-margin offerings and synergies from recent acquisitions.
Segment performance revealed broad-based strength across AAR's aviation aftermarket businesses. Parts Supply sales jumped 45%, driven by 36% organic growth in new parts distribution and 55% organic growth in government customer sales. Repair & Engineering sales increased 23%, while Integrated Solutions grew 3% with a higher-margin mix.
The strong operational performance translated into improved profitability metrics. Adjusted EBITDA increased 26% to $102.1 million, with margins expanding to 12.1% from 12.0% in the prior year quarter. The adjusted operating margin improved to 10.2% from 9.7% a year earlier, while cash flow from operations strengthened to $74.7 million.
AAR used the robust cash generation to reduce net debt to $816.5 million, bringing its leverage ratio to 2.17x, which the company noted is within its target range. The balance sheet improvement comes as the company integrates several recent acquisitions, including HAECO Americas and ADI, with Holmes noting that both integrations are ahead of schedule or exceeding expectations.
Analysts remain largely bullish on the stock, with 6 of 7 covering analysts rating it a buy and an average price target of $119.80, essentially matching Wednesday's closing price. The stock's forward price-to-earnings ratio stands at 18.38, below its trailing P/E of 40.43, reflecting expectations of continued earnings growth.
The strong results from AAR come amid broader strength in the aerospace and defense sector, which has benefited from robust commercial aviation demand and increased government spending on defense capabilities. The Dow Jones Industrial Average gained approximately 350 points on Wednesday, with AAR joining other technology and industrial stocks moving higher.
Holmes acknowledged the company is monitoring the ongoing conflict in the Middle East but emphasized that "fundamental demand for air travel remains strong." The company's fourth-quarter guidance includes an anticipated tax rate of approximately 28%.
AAR, which provides products and services to the commercial aviation and government/defense industries, has a market capitalization of approximately $4.1 billion. The company's fiscal year ends in May, with the A-R-T acquisition expected to close in the fourth quarter of fiscal 2026, potentially providing additional growth drivers heading into the new fiscal year.