Aar's Growth Holds Up But Margin Gains Stall in Q4
Aar Corp (AIR) grew fourth-quarter sales 23% to $928.0 million, but adjusted EBITDA margin widened just 10 basis points as the HAECO Americas integration ate into profitability.
Aar Corp (AIR) reported fourth-quarter sales of $928.0 million, up 23% from $754.5 million a year earlier, extending a run of mid-20% growth that has defined the aviation-services provider's fiscal year. Adjusted diluted earnings per share rose 32% to $1.53 from $1.16, accelerating from the 26% growth logged in the fiscal third quarter.
The headline numbers mask a slower quarter on margins. Adjusted EBITDA margin expanded just 10 basis points year over year, to 12.5% from 12.4%, matching the third quarter's own 10-basis-point gain but falling well short of the 30-basis-point expansion Aar delivered for the full fiscal year. Management attributed the quarterly slowdown to short-term dilution from the HAECO Americas acquisition, a deal that is reshaping the company's segment mix faster than it is adding to profitability.
Parts Supply, still Aar's largest segment, grew sales 39% to $423.8 million, decelerating from 45% growth in the third quarter. Segment margin compressed 250 to 300 basis points, to a range of 13.3%-14.6% from 16.3%-17.1%, a deterioration the company tied to a one-time $6.5 million USM gain that inflated the year-ago quarter — a comparison issue not flagged when third-quarter results were released. Repair, Engineering & Software sales grew 35% to $314.4 million, with segment adjusted EBITDA up 29%, though roughly 130 basis points of that growth was diluted by HAECO Americas integration costs.
Aar announced a new four-segment structure — Parts Supply, RE&S, Government Solutions, and Legacy Commercial Programs — and disclosed plans to wind down the Legacy Commercial Programs unit, a strategic shift not previewed in the March or prior releases. Legacy Commercial Programs sales fell about 20% in the quarter, to $59.6 million from $74.8 million, after holding roughly flat at $55.6 million as recently as the February quarter.
GAAP operating margin for the full year improved to 8.4% from 6.7%, but the quarterly trend ran the other way: fourth-quarter GAAP operating margin slipped to 8.6% from 9.7% a year earlier, weighed down by $11.3 million in acquisition, amortization and integration expense versus just $0.3 million in the year-ago quarter. Operating cash flow of $55.3 million also fell short of the $75 million generated in the third quarter, even as profit continued to climb.
Average diluted shares outstanding rose 11% to 39.6 million from 35.6 million, reflecting the equity offering the company completed earlier in the fiscal year that raised roughly $273.9 million in net proceeds. Net leverage nonetheless improved to 2.03 times from 2.17 times at the end of the third quarter, moving further inside the company's targeted 2.0-to-2.5 times range.
For the first quarter of fiscal 2027, Aar guided to sales growth of 21% to 23% and adjusted EBITDA margin of 12.25% to 12.75%, both figures excluding the Legacy Commercial Programs segment being wound down — the first time the company has framed guidance around its new four-segment structure rather than its prior as-reported segments.