Triumph Group Underperforms

Triumph Group, Inc. (TGI) reported results for the third quarter of fiscal 2010. Income from continuing operations was $18.1 million, or $1.08 per diluted share -- down from $20.1 million, or $1.21 per diluted share, for the third quarter of the prior year. Reported EPS was also below the Zacks Consensus Estimate of $1.20.
 
Net sales during the quarter were $313.5 million, increasing 10% from last year’s third quarter net sales of $285.2 million.

The Aerospace Systems segment reported net sales for the quarter of $262.9 million, an increase of 18% from $222.8 million in the prior year quarter.

The Aftermarket Services segment reported net sales for the quarter of $51.4 million, compared to $63.1 million in the prior-year period, a decrease of 19%. The decrease was primarily due to lower passenger and freight traffic and the continued effects of deferring maintenance and inventory de-stocking.

Operating income was $32.9 million, up from $30.4 million during the same period of fiscal 2009.

Approximately $0.8 million of start up costs related to its Mexican facility were also included in the results for the quarter.

Triumph continues to remain focused on growing its core businesses as well as growing through strategic acquisitions. Organic growth remained strong in fiscal 2009 through the addition of products and services, expansion of the operating capacity and marketing of the complete portfolio of capabilities, while benefiting from the continued strength in the aerospace markets generally.

Triumph has grown strongly over the past decade as a result of overall growth in the aerospace equipment and repair market, augmented by a string of more than 30 acquisitions. Triumph has set its sight on achieving $1 billion in annual sales and has been moving towards its goal through acquisitions.

The company has witnessed its sales increase by more than $200 million in the last three years through its seven largest acquisitions. We expect mergers and acquisitions to continue in order to facilitate the company reach its $1 billion annual sales goal.

Triumph has been benefiting from companies such as Boeing (BA), searching for alternatives to internal manufacturing and in-house maintenance. Triumph has been able to take advantage of these trends through increased market share by concentrating on services and production where it has a sustainable cost advantage. This can also be one way for the company to prosper in the long term.
 
Management expects EPS for the fiscal year 2010 to be approximately $4.80 per diluted share. Thus, we maintain our Neutral recommendation on the stock.

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