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Triumph Group Inc.’s (TGI - Analyst Report) adjusted earnings from continuing operations for the fiscal second quarter 2014 ended Sep 30, 2013, came in at $1.01 per share, easily beating the Zacks Consensus Estimate of 90 cents. However, the quarterly result decreased 35.7% from the year-earlier adjusted profit of $1.57 per share.

Including the costs related to the Jefferson Street facility move, GAAP earnings per share reported by the company were 94 cents, down from $1.53 per share in the prior-year quarter.

The company is working to shift its production operations from the Jefferson Street location to the new facility being built in Red Oak, Texas. The move is expected to be completed in 2015.

Operational Highlights

In the reported quarter, net sales increased 3.1% year over year to $967.3 million. The reported figure also comfortably surpassed the Zacks Consensus Estimate of $957 million. The year-over-year increase reflects a significant rise in revenues at Aerospace Systems partially offset by a decline in Aerostructures and Aftermarket Services revenues.

However, organic sales for the quarter decreased 4% primarily due to production rate cuts on The Boeing Company’s (BA - Analyst Report) 767 and 747-8 programs, a decrease in military sales and lower non-recurring revenue.

Operating income in the fiscal second quarter decreased approximately 35% year over year to $93 million.

Segment Details

Aerostructures: Segment sales were $690.7 million, down 3.3% year over year. Organic sales were down 5.0% due to production rate cuts on the 767 and 747-8 programs, a decrease in military sales and a decline in non-recurring revenue.

Aerospace Systems: Segment sales jumped 36.9% year over year to $205.5 million. The significant increase was driven by the benefits from the acquisitions of Triumph Processing-Embee Division and Triumph Engine Control Systems.  Organic sales for the quarter declined 3.0% due to decreased military sales and also a decline in non-recurring revenue.

Aftermarket Services: Segment revenue was $73.0 million, down 4.1% year over year due to the impact of the Instrument Companies divestiture. Organic sales were up 5.0%.

Financial Update

Exiting the second quarter 2014, Triumph’s cash balance was $22.4 million compared with $32.0 million as of Mar 31, 2013. Total debt was $1,448.3 million, up from $1,329.9 million as of Mar 31, 2013. The debt-to-capitalization ratio in the reported quarter stood at 39.5%.

Guidance

For fiscal year 2014, the company reaffirmed its sales forecast in the range of $3.8 billion to $4.0 billion. Adjusted earnings per share from continuing operations for fiscal year 2014 are expected to be $5.25 per share. This excludes costs related to the Jefferson Street move.

Including the after-tax impact of additional program costs associated with the 747-8 program, the impact of Boeing’s recent announcement to reduce the production rate on the 747-8 to 1.5 per month and costs associated with the anticipated refinancing of Senior Subordinated Notes due 2017 in the third quarter of fiscal year 2014, the company expects earnings per share of $4.60 for fiscal year 2014.

Outlook

Triumph Group’s top and bottom line succeeded in beating the Zacks Consensus Estimate. The company continues to progress well on its Jefferson Street to Red Oak move. Also, the acquisitions made by the company are adding to its top line.

However, these acquisitions have weighed upon the company’s cash position. Also, the company is burdened with additional program costs primarily associated with the 747-8 program and production rate cuts on the 767 and 747-8 programs. Other factors that could act as headwinds include cyclicality of the aerospace market, lower demand on the military front and foreign currency fluctuations. Triumph has a Zacks Rank #5 (Strong Sell).

Among the stocks worth considering in the space are Hexcel Corp. (HXL - Snapshot Report) and Spirit AeroSystems Holdings, Inc. (SPR - Snapshot Report), both with a Zacks Rank #2 (Buy).

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