AAR Corp (AIR) 2004 Q1 法說會逐字稿

Welcome to the first quarter earnings release conference call. Just a reminder, this call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Greg Moore with investor relations. Please go ahead, sir.

Thank you, Denise. Good morning, ladies and gentlemen, and thank you for taking the time to participate in this morning's conference call. Before we begin, we would like to remind you that certain of the comments made today relate to future events which are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please refer to the forward-looking statement disclaimer contained in the press release issued this morning as well as those factors discussed under item 7 entitled "factors which may affect future results" included in the company's May 31, 2003 Form 10-K. By providing forward-looking statements the company assumes no obligation to update the forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. At this time, I would like to turn the call over to our President and CEO, David Storch.

Thank you, Greg, and good morning. With me today is Tim Romenesko, our Chief Financial Officer. And on the past you were accustomed to an introduction from Dawn Kaiser and, as I mentioned before, Dawn has moved into an operating position with the company and is bringing the same level energy into that position as she brought into her financial analyst role and we're quite pleased with the progress of her career.

By now I believe that you have had the opportunity to review our first quarter fiscal 2004 results which we released earlier today. For the first quarter, the company reported consolidated net sales of 152.1 million and a net loss of 2 million or 6 cents per share, compared to the first quarter of last year when we reported roughly similar sales of 151.2 and a net loss of 4.9 million or 15 cents per share. While sales were essentially flat year-over-year, we experienced sales momentum throughout the fourth -- first quarter leading to August results which were our highest monthly sales announced since August of 2001.

I am pleased to report that each of our four segments experienced a year-over-year improvement in operating profit driven by higher gross margins and lower ISG&A expenses. I am also pleased that we generated 9 million of cash flow from operations which comes on the heels of generating 22.8 million of cash in the fourth quarter. And we're also quite confident that we'll continue this trend into our second period as well. In the inventory and logistics services segment, net sales were 61.7 million or approximately $400,000 higher than the prior year. During the quarter, we experienced higher sales of engine parts and military spares. These increases were partially offset by lower sales at our distribution business -- sales at distribution were higher for our commercial airline customers, while sales to our generally aviation customers declined as we continued to shift our resources and focus in support of our large airlines and regional customers in this area.

In the maintenance, repair and overhaul segment, net sales increased 6.5 million or 13.8 percent versus last year. The sales increase was driven by higher sales at our airfreight maintenance facility in Oklahoma City due to numerous expanding relationships including Alaska Airlines and Mesa Airlines. We also experienced sales growth at our industrial turbine business in upstate New York. Our component repair operations continue to experience weak demand, and during the quarter we took additional steps to reduce the future operating cost of these businesses. In the manufacturing segment, we experienced a 10 percent decline in sales from the prior year as we saw lower sales of composite structure products and cargo systems. However, sales of the company's manufactured products that support the U.S. military's technical deployment requirements continued at a robust pace.

We will continue -- we will see continued strength in our Mobility Systems business unit throughout the year as backlog has increased since the beginning of our fiscal year. Backlog has also increased at our cargo systems business. In the aircraft engine sales and leasing segment we had some success with the sale of a narrow body aircraft during the period while we continue to also offer advisory services. Our consolidated gross profit margin during the fourth quarter was 13.9 percent, up 210 basis points from a year ago and also up from the fourth quarter of last fiscal year. Our inventory and logistics services, manufacturing, aircraft and engine sales and leasing segments each experienced an improvement in gross profit driven by lower expenses and the favorable mix of inventory sold.

We remain focused on generating cash and strengthening our liquidity position. As previously announced, the company completed an $11 million financing secured by a mortgage on our Wooddale, Illinois facility during the first quarter. As of August 31, the company had 31.9 million of cash on hand and $24 million available under our existing credit facility. This gives the company adequate liquidity to meet its $22.6 million note obligation through this October. We understand our customers' needs for low-cost value added solutions, and we continue to aggressively manage our own cost structure.

For the first quarter, our combined indirect selling, general and administrative expenses were 2.5 million lower than the previous year and are now at the lowest level since the second quarter of fiscal 1998. Included in the first quarter expense figure is 600,000 severance cost, and we expect the trend of lower expenses will continue right into our second-quarter. We are pleased with the improvement in our operating performance during the first quarter in the face of continuing weakness in the airline industry, although we did see some strength as the quarter progressed. We are aware that there is still work to be done. The improvement in our operating results, along with a 22 percent increase in backlog, reflects our strategy of continuously improving our business and positioning AAR to provide quality products and services at competitive prices.

As we enter the second quarter on the heels of our best sales month in two years, and with a lower cost structure, enhanced liquidity, and an improved balance sheet, we believe that we are well positioned to benefit as our airline and government customers continue to seek lower cost solutions. I want to thank you for taking your time with us this morning, and for your continued support. I'd like to now open up the lines to any questions you may have.

(OPERATOR INSTRUCTIONS) Jim Hosemeyer (ph) with Conseco.

Good morning, gentlemen. If you could just repeat for me the unavailability in the credit facility would be my first question. And the second would be, if you could into -- you mentioned the backlog improvements, and hopefully I didn't miss this during your comments, but if you could go into that in a little more detail, that would be helpful as well?

We had cash and availability on the line of $56 million at the end of the quarter. And 24 million of that was on the lines and the balance was the cash on hand. The backlog increase was really spread around. We had a nice increase in backlog at our airframe maintenance business and also our manufacturing businesses.

Would you care to quantify those improvements?

The total backlog increased, as we said, 22 percent.

Could you break that down by segment?

We haven't historically.

Okay.

(OPERATOR INSTRUCTIONS) Sir, we have no further questions. You may continue.

Okay. Thank you for your participation, and hopefully we've clearly defined the status of the company and I'm pleased that it was clear enough that there are no more questions. Thank you.