Aviation and defense services provider AAR CORP (NYSE: AIR) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 11.8% year on year to $739.6 million. Its non-GAAP profit of $1.08 per share was 9.8% above analysts’ consensus estimates.

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"Our first quarter was a strong start to the fiscal year as we drove significant growth across all of our segments. Adjusted sales were up 17% organically largely driven by Parts Supply which was up 27% in the quarter. Once again, we saw exceptional performance out of our new parts Distribution activities as we continue to win new business and expand our market share," said John M. Holmes, AAR's Chairman, President and CEO.

Company Overview

The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE: AIR) is a provider of aircraft maintenance services

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, AAR’s 8.2% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AAR’s annualized revenue growth of 16.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Parts Supply, Repair & Engineering, and Integrated Solutions, which are 43%, 29%, and 25% of revenue. Over the last two years, AAR’s revenues in all three segments increased. Its Parts Supply revenue (engine and airframe parts) averaged year-on-year growth of 15.2% while its Repair & Engineering (maintenance, repair, and overhaul services) and Integrated Solutions (fleet management) revenues averaged 30% and 11.4%.

This quarter, AAR reported year-on-year revenue growth of 11.8%, and its $739.6 million of revenue exceeded Wall Street’s estimates by 7.4%.

Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

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Operating Margin

AAR was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.4% was weak for an industrials business.

On the plus side, AAR’s operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, AAR generated an operating margin profit margin of 8.8%, up 2.2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AAR’s EPS grew at an astounding 18.9% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of AAR’s earnings can give us a better understanding of its performance. As we mentioned earlier, AAR’s operating margin expanded by 1.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AAR, its two-year annual EPS growth of 16.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, AAR reported adjusted EPS of $1.08, up from $0.85 in the same quarter last year. This print beat analysts’ estimates by 9.8%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from AAR’s Q3 Results

We were impressed by how significantly AAR blew past analysts’ revenue expectations this quarter. EPS also came in ahead. Zooming out, we think this was a solid print. The stock remained flat at $78.67 immediately after reporting.

AAR may have had a good quarter, but does that mean you should invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.