AAR Corporation has reported second quarter (Q2) fiscal year 2025 results. Consolidated second-quarter sales rose by 26% to US$686.1 million, compared to US$545.4 million in the same period last year. This increase reflects a 30% growth in consolidated sales to commercial customers, driven by the acquisition of the Product Support business and robust demand across the company's Parts Supply segment. Sales to government customers also rose by 16%, primarily due to higher order volumes for new parts distribution activities. Commercial customer sales accounted for 73% of consolidated sales in Q2, up from 71% in the prior year's quarter.
Q2 results included after-tax charges of US$57.1 million related to the recently announced FCPA settlement and associated costs. These charges led to a net loss of US$30.6 million, or US$0.87 per share, compared to net income of US$23.8 million, or US$0.67 per diluted share, in the same period last year. Adjusted diluted earnings per share increased to US$0.90 in the current quarter, compared to US$0.81 in the prior year's quarter.
Selling, general, and administrative (SG&A) expenses reached US$133.1 million in Q2, up from US$65.7 million in the previous year. This increase includes US$59.2 million for FCPA-related settlement costs. Acquisition, amortisation and integration expenses amounted to US$4.4 million, compared to US$3.1 million in the prior year.
Operating margins declined to (0.3)% in Q2, from 7.0% in the prior year quarter. However, adjusted operating margins improved to 9.2%, compared to 8.1% last year, primarily due to growth in commercial sales. Sequentially, adjusted operating margins improved slightly from 9.1% to 9.2%, supported by enhanced profitability in the Repair & Engineering segment.
Net interest expense for Q2r rose to US$18.8 million, compared to US$5.6 million in the previous year, primarily due to increased debt levels from funding the Product Support acquisition. The average diluted share count increased from 35.3 million in the prior year quarter to 35.5 million in the current Q2. Debt repayment remains a priority, though the company plans to continue exploring other investment opportunities and share repurchases. Currently, US$52.5 million remains under the existing US$150 million share repurchase programme.
Cash flow from operating activities reached US$22.0 million during Q2, up from US$17.4 million in the same period last year. Excluding the accounts receivable financing programme, cash flow from operating activities was US$27.1 million. As of 30 November 2024, net debt stood at US$935.3 million, with net leverage, pro forma for the last 12 months adjusted EBITDA of the Product Support business, at 3.17x.
