• Second quarter sales increased 17% to $493 million in Q2 FY2019

• Second quarter diluted earnings per share from continuing operations of $0.32 after a charge for bad debt expense, or $0.59 on an adjusted basis

• Adjusted diluted earnings per share from continuing operations up 51% from Q2 FY2018

AAR CORP. (NYSE: AIR) today reported second quarter fiscal year 2019 consolidated sales of $493.3 million and income from continuing operations of $11.2 million, or $0.32 per diluted share. Second quarter results included a non-cash pre-tax charge of $12.4 million, or $0.27 per diluted share, driven by a European airline customer bankruptcy. For the second quarter of the prior year, the Company reported sales of $420.6 million and income from continuing operations of $13.2 million, or $0.38 per diluted share. Our adjusted diluted earnings per share from continuing operations increased 51% from $0.39 last year to $0.59 in the current quarter.

Consolidated sales increased 17.3% over the prior year period due to continued growth in our trading, distribution and programs activities. Excluding the impact of the wind-down of the KC-10 CLS program and despite softness in our MRO activities, our Aviation Services sales grew 21.0% year over year.

"Our robust growth continued into the second quarter driven by exceptional performance in our trading, distribution and programs activities. These strong results were adversely impacted by a charge related to the bankruptcy of a European program customer which occurred late in the quarter. While this was an unfortunate development, overall we are confident in the strength and quality of our diverse customer base," said John M. Holmes, President and Chief Executive Officer of AAR CORP.

During the quarter, we announced several new business wins across the Company which include:

Distribution agreement with Zodiac Aerospace of the Safran Group to distribute water and waste products
Distribution agreement with Ontic of BBA Aviation to distribute electronics products across multiple military platforms
Engine supply agreement with Ameco, a Lufthansa Technik and Air China joint venture
Government contract to provide maintenance and logistics support for the U.S. Marshals' fleet of Boeing 737 aircraft
Joint venture with Napier Park Global Capital, a London based private equity firm, to acquire late life aircraft

Holmes continued, "We are very pleased with the number of new contract awards across multiple product lines. We are further encouraged by the robust pipeline of opportunities we see in both the government and commercial markets which validates our growth strategy."

Sales to government and defense customers were 32% of consolidated sales compared to 26% in the prior year's quarter reflecting growth from the WASS program and other government sales. Second quarter sales to commercial customers, which also increased during the period, represented 68% of consolidated sales compared to 74% of consolidated sales in the second quarter of last year.

Gross profit margins decreased to 15.9% in the current quarter from 16.8% in the prior year quarter due primarily to lower volumes in our airframe maintenance facilities. Selling, general and administrative expenses as a percentage of sales were 10.0% for the quarter, compared to 11.6% last year, reflecting continued leverage of our cost structure to support our double-digit sales growth.

Net interest expense for the quarter was $2.4 million compared to $1.8 million last year. Also during the quarter, the Company paid cash dividends of $2.6 million, or $0.075 per share. Average diluted share count for the quarter was 35.0 million compared to 34.5 million in the second quarter last year. Cash flow used in operating activities from continuing operations was $8.3 million.

Holmes concluded, "We acted upon numerous investment opportunities to support the significant growth in our trading, distribution and programs activities. As previously communicated, we expect to generate significant cash flow in the second half of the year and will become cash positive for the entire year."