Aerospace and defense company AerSale (NASDAQ:ASLE) fell short of analysts' expectations in Q2 CY2024, with revenue up 11.2% year on year to $77.1 million. It made a GAAP loss of $0.07 per share, improving from its loss of $0.08 per share in the same quarter last year.
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AerSale (ASLE) Q2 CY2024 Highlights:
- Revenue: $77.1 million vs analyst estimates of $88.31 million (12.7% miss)
- EPS: -$0.07 vs analyst estimates of $0.05 (-$0.12 miss)
- Gross Margin (GAAP): 28.2%, in line with the same quarter last year
- EBITDA Margin: 4.1%, up from -10% in the same quarter last year
- Free Cash Flow was -$18.94 million compared to -$25.05 million in the previous quarter
- Market Capitalization: $305.9 million
Nick Finazzo, AerSale’s Chief Executive Officer, commented, “Our results improved over the prior year driven by higher feedstock acquisitions over the past 18 months, continued demand in MRO and incremental volume of AerSafe™. We have also advanced on a set of initiatives to drive future growth and more consistently exceed our fixed cost hurdles. We have progressed on the multi-year expansion of both capacity and capabilities at our on and off-airport MRO facilities, which includes our new on-airport MRO in Millington, Tennessee, pneumatics capability at our Miami, Florida accessories shop, and tripling the size of our aerostructures shop also located in Miami. Our Millington on-airport MRO was completed in May and is presently serving our first airline customer. We expect both of our Miami component MROs to be serving customers before year-end, at which time we anticipate a sharp rise in sales from these business units.”
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ:ASLE) delivers full-service support to mid-life commercial aircraft.
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Thankfully, AerSale's 8.4% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AerSale's recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 11.5% over the last two years.
This quarter, AerSale's revenue grew 11.2% year on year to $77.1 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 20.1% over the next 12 months, an acceleration from this quarter.
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Operating Margin
AerSale was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 6.6%.
Analyzing the trend in its profitability, AerSale's annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, meaning it will take a fundamental shift in the business to change.
This quarter, AerSale generated an operating profit margin of negative 2.4%, up 7.6 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its 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.
Although AerSale's full-year earnings are still negative, it reduced its losses and improved its EPS by 85.2% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for AerSale, its EPS declined more than its revenue over the last two years, dropping by 42.6%. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Diving into the nuances of AerSale's earnings can give us a better understanding of its performance. While we mentioned earlier that AerSale's operating margin improved this quarter, a two-year view shows its margin has declined 24.9 percentage points. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, AerSale reported EPS at negative $0.07, in line with the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data.
Key Takeaways from AerSale's Q2 Results
We struggled to find many strong positives in these results. Its revenue and EPS unfortunately missed Wall Street's estimates. The stock traded down 1.3% to $5.50 immediately following the results.
AerSale may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.