Shares in aviation services company AAR Corp (AIR 0.22%) declined more than 5% as of late trading today. The decline comes as a consequence of the company's fiscal fourth-quarter and full-year earnings announced earlier in the day.
It's not that there was anything wrong with the results per se. Sales were up 9% in the quarter with a whopping 28% year-over-year increase in sales to commercial customers. Sales to government customers declined by 13% in the quarter on a year-over-year basis. Still, the market has long known that its military business would suffer due to a winding down of U.S. military operations in Afghanistan.
Instead, what spooked the market was management's commentary on 2023. As CEO John Holmes noted on the earnings call, "the trajectory of the commercial aviation market recovery remains difficult to predict, exacerbated by increasing macroeconomic uncertainty." He declined to give formal guidance.
In a sense, there's not much else Holmes could have said, and AAR doesn't give formal guidance anyway. It's no secret that there's a lot of uncertainty around the global-growth trajectory, and air travel is an economically sensitive activity. Holmes also said that the "overall demand for air travel that we're hearing from our customers still remains very, very strong." And he also reiterated that the ongoing difficulty was meeting that demand, particularly in obtaining used parts for sale to customers.
It's a somewhat confusing picture. On the one hand, current demand is strong (in fact, too strong to enable AAR and others to support that demand fully); on the other hand, it's about to tail off. It's tough to tell where the economy and air travel are heading, so it might be premature to start pricing in a significant slowdown just yet. Even so, AAR remains one of the best aerospace stocks to buy.