Executive Summary

Q1 FY26 delivered double‑digit growth and margin expansion: sales $739.6M (+11.8% y/y) with adjusted operating margin 9.7% (+60 bps y/y). Adjusted EPS was $1.08 (+27% y/y), and adjusted EBITDA was $86.7M (11.7% margin) .
Results exceeded Wall Street on revenue and on EPS vs S&P Global’s “Primary EPS” consensus: revenue beat by ~$50.1M* and adjusted EPS of $1.08 vs Primary EPS consensus of $0.98*; GAAP EPS was $0.95 . Values retrieved from S&P Global.
Parts Supply remained the engine (sales +27% y/y) with strong new parts Distribution and a meaningful pickup in USM; Integrated Solutions +10% y/y; Repair & Engineering organic +8% ex‑Landing Gear despite headline -1% y/y .
Initial Q2 FY26 outlook: sales growth of 7–10% off Q2 FY25 organic base ($665.7M) and adjusted operating margin of 9.6–10.0%; FY26 organic sales growth now “approaching 10%,” up from ~9% in July—an incremental raise .
Stock‑relevant narrative: accelerating Distribution wins (exclusive AmSafe Bridport defense deal), Trax software momentum (Delta, JetBlue) and Aerostrat acquisition expand higher‑quality mix; near‑term working capital investment weighed on Q1 cash flow but management expects positive OCF in Q2 and FY26 .

What Went Well and What Went Wrong

What Went Well
- Parts Supply outperformed: sales +27% y/y to $317.8M; adjusted operating margin expanded to 12.9% from 12.1% . “We continue to win and grow in new parts distribution… averaging more than 20% organic growth in each of the last four years.” — John Holmes .
- Software/IP momentum: Trax wins (Delta rollout; JetBlue upgraded to eMobility/cloud) and Aerostrat acquisition add scope and cross‑sell potential .
- Margin execution: adjusted operating margin rose to 9.7% (9.1% prior‑year), driven by mix and efficiencies; adjusted EBITDA margin 11.7% (11.3% prior‑year) .
What Went Wrong
- Cash flow: operating cash flow used was $(44.9)M as inventories rose $51.8M to support growth; management expects positive OCF over the balance of FY26 .
- Repair & Engineering headline sales dipped 1% y/y to $214.6M due to Landing Gear divestiture; organic still +8% but requires continued integration/efficiency ramp .
- Net leverage ticked to 2.82x from 2.72x in Q4, reflecting inventory build and the $15M Aerostrat acquisition; target remains 2.0–2.5x in FY26 .

Financial Results

Consolidated performance vs prior quarters

Metric	Q3 FY25 (oldest)	Q4 FY25	Q1 FY26 (newest)
Revenue ($M)	$678.2	$754.5	$739.6
GAAP EPS	$(0.25)	$0.95	$0.95
Adjusted EPS	$0.99	$1.16	$1.08
Adjusted EBITDA Margin %	12.0%	12.4%	11.7%
Adjusted Operating Margin %	9.7%	10.5%	9.7%

Q1 FY26 actuals vs S&P Global consensus

Metric	Actual	Consensus*	Delta*
Revenue ($M)	$739.6	$689.5*	+$50.1*
Primary EPS	$0.95 (GAAP) / $1.08 (Adjusted)	$0.98*	+$0.10* vs Adjusted EPS; −$0.03* vs GAAP EPS

Values retrieved from S&P Global. Note: Company emphasizes adjusted diluted EPS; S&P “Primary EPS” may not be directly comparable.

Segment performance (Q1 FY26 vs Q1 FY25)

Segment	Sales Q1 FY25 ($M)	Sales Q1 FY26 ($M)	y/y	Operating Income Q1 FY25 ($M)	Operating Income Q1 FY26 ($M)	Margin Q1 FY25	Margin Q1 FY26
Parts Supply	249.7	317.8	+27%	30.1	40.9	12.1%	12.9%
Repair & Engineering	217.6	214.6	−1%	21.1	20.4	9.7%	9.5%
Integrated Solutions	168.9	185.0	+10%	7.7	9.7	4.6%	5.2%
Expeditionary Services	25.5	22.2	−13%	(1.7)	3.0	−6.7%	13.5%

KPIs and mix

KPI	Q1 FY26	Q1 FY25
Commercial Mix	71% of sales	71%
Government Mix	29% of sales	29%
Net Debt ($M)	$950.0	$942.7
Net Leverage (x)	2.82x	2.82x (TTM calc)
Operating Cash Flow ($M)	$(44.9)	$(18.6)
Inventory Change ($M)	$(51.8) (use of cash)	$(14.8)
Avg. Diluted Shares (M)	35.9	35.6

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Sales Growth (y/y, off Q2 FY25 organic $665.7M base)	Q2 FY26	N/A	7%–10%	New
Adjusted Operating Margin	Q2 FY26	N/A	9.6%–10.0%	New
Tax Rate	FY26 framework	N/A	~28%	New
Organic Sales Growth (Full‑year)	FY26	~9% (referenced from July)	“Approaching 10%”	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY25)	Previous Mentions (Q4 FY25)	Current Period (Q1 FY26)	Trend
New parts Distribution	Unison and Chromalloy exclusive distribution wins; Distribution led growth	“Over 20% organic” Distribution; strong mix	Continued double‑digit Distribution growth; share gains; AmSafe Bridport defense agreement	Strengthening
Software (Trax)	Cathay Pacific license; traction building	Delta TechOps implementation; SIA Eng. and Amerijet wins	JetBlue eMobility/cloud expansion; Aerostrat acquired; marketplace initiative in development	Expanding scope
MRO capacity/efficiency	Airframe MRO throughput gains	Launch of OKC & Miami expansions	15% new capacity coming online in 2026; sold out; paperless hangar ~60% rolled out	Positive, sold‑out capacity
USM supply	Industry tight but improving visibility implied	N/A explicit	“Meaningful pickup” in USM; supply loosening, still tight margins near‑term	Improving supply; margins to follow
Leverage/Cash	Net leverage 3.06x; deleveraging expected	2.72x; strong OCF in Q4	2.82x on inventory/Aerostrat; expect positive OCF Q2/FY26	Near‑term uptick; improving outlook
Government programs	Growth and DLA/defense wins	DLA Supply Chain Alliance charter	Integrated Solutions +10% y/y; AmSafe defense distribution; DLA IDIQ up to $85M post‑Q	Healthy pipeline

Management Commentary

“We delivered significant top-line growth with higher profitability… 17% organic adjusted sales growth… We continue to win and grow in new parts distribution.” — John Holmes .
“Adjusted EBITDA increased 18% to $86.7 million, and adjusted EBITDA margins increased to 11.7% from 11.3%.” — Sean Gillen .
“We invested over $50 million in inventory in the quarter to support future growth… We expect to be cash positive in Q2 and for the full fiscal year.” — Sean Gillen .
“In Repair & Engineering, our existing hangars have a multi‑year backlog, and the 15% new capacity coming online in Oklahoma City and Miami in calendar 2026 has also been sold out.” — John Holmes .
“We would maintain [mid‑teens+ outgrowth] outlook for distribution and would expect to continue to grow above market there.” — John Holmes .

Q&A Highlights

Distribution/Outlook: Parts Supply drives raised FY26 organic growth (“approaching 10%”); exclusive model with OEMs is taking share and opening doors to more bids .
Cross‑sell into Component Services: Product Support integration largely complete; early innings of leveraging airframe MRO leadership to redirect repair volumes to Dallas/Wellington; longer sales cycles vs parts .
USM Dynamics: Loosening supply aided Q1; margins in USM remain depressed vs history due to tight spreads; expect margin expansion as more assets hit the market .
Trax/Aerostrat: Three‑year earn‑out aligns incentives; two‑way synergies (Aerostrat into Trax base; Trax into Aerostrat base); marketplace initiative targeted for 1H 2026 updates .
Inventory Investment: Elevated in Q1 to support parts growth; balanced against objective to deliver positive OCF for remainder of FY26 .

Estimates Context

Q1 FY26 vs consensus (S&P Global): revenue $739.6M vs $689.5M estimate* (beat by ~$50.1M*); company reported GAAP EPS $0.95 and adjusted EPS $1.08 vs Primary EPS consensus $0.98* . Values retrieved from S&P Global.
Next quarter (Q2 FY26) consensus: revenue ~$760.7M*, Primary EPS ~$1.04*; management guided sales growth of 7–10% off $665.7M organic base (implying ~$712–$732M), and adjusted operating margin 9.6–10.0%, suggesting street revenue may be ahead of guidance run‑rate . Values retrieved from S&P Global.

Key Takeaways for Investors

Mix quality rising: Distribution and software (Trax/Aerostrat) continue to outgrow, supporting structurally better margins vs legacy cycles .
Execution credibility: Y/Y growth and y/y margin expansion alongside cost discipline (SG&A down y/y) and continued integration benefits .
Working capital is tactical: Inventory build supports Parts Supply acceleration; management targets positive OCF from Q2 onward—a key near‑term proof point .
Guidance vs Street: Q2 sales guide (7–10% growth off $665.7M) implies ~$712–$732M vs ~$761M* consensus; setup argues for conservative guide or potential estimate recalibration near‑term . Values retrieved from S&P Global.
Capacity sold‑out in MRO with 2026 expansions (OKC/Miami) already spoken for—visibility supports medium‑term growth and operating leverage .
USM optionality: Improving asset availability is a lever for Parts Supply margins over time, complementing strong Distribution .
De‑leveraging path intact: Despite Q1 tick‑up to 2.82x on growth investments, framework targets 2.0–2.5x in FY26—monitor cash conversion and inventory turns .

Appendix: Additional Data Points

Selected P&L and non‑GAAP reconciliations, cash flow, segment details, and net debt/TTM adjusted EBITDA calculations are provided in the company’s press release and 8‑K exhibits .

Footnote: Asterisks indicate values sourced from S&P Global consensus/estimates. Values retrieved from S&P Global.

AAR CORP (AIR)·Q1 2026 Earnings Summary