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Acquisition Pushes Triumph Results
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ShareTriumph Group Inc. (TGI) reported its first-quarter EPS of $1.33, marginally up from $1.30 in the year-ago quarter. Reported EPS surpassed the Zacks Consensus Estimate of $1.08. Net earnings were $24.8 million, up 15.3% from $21.5 million in the first quarter of fiscal 2010.
Total sales grew to $406.4 million from $316.1 million in the same period of fiscal 2010, reflecting an increase of 29% year over year. This huge jump was fueled by the Vought acquisition. However, organic growth was only 2%. Sales during the quarter also beat the Zacks Consensus Estimate of $380.0 million.
Sales from Aerospace System grew 33.4% year over year to $346.9 million, while Aftermarket Services stretched only 3.5% to $59.8 million.
During the quarter, Triumph completed the acquisition of Vought Aircraft Industries Inc. from a private equity firm, The Carlyle Group, for $1.44 billion. Triumph paid $525 million in cash and offered 7.5 million shares to Carlyle for a 31% stake in Triumph. Triumph issued senior notes to fund the acquisition. The acquired business will operate as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division.
Operating income was $50.2 million, up 32.6% from $37.9 million during the same period of fiscal 2010. Operating margin also grew by 40 basis points to12.4% from 12.0% in the first quarter of previous year. However, EBITDA margin dropped by 40 basis points to 16.0% based on increase in sales at a higher rate than EBITDA. EBITDA increased to $65.0 million, up 25.1% year over year from $51.9 million in the year-ago quarter.
At the end of the first quarter of fiscal 2011, net debt was $1,299.6 million, significantly up from $359.1 million at the end of the previous quarter, attributable to the Vought acquisition. Net debt accounted for 48.6% of total capital in the quarter compared with just 28.8% in the previous quarter.
Triumph has witnessed its sales increase by more than $300 million in the last three years through various acquisitions. We expect mergers and acquisitions to continue in order to facilitate the company attain its $1.5 billion annual sales goal.
For 2011, Triumph expects an EPS of approximately $6.0 and sales within the range of $1.3 to $1.4 billion. Management expects the new business to be immediately accretive to earnings and add approximately $25 million of revenues in fiscal year 2011. Owing to the acquisition, during 2011, EPS will grow by approximately $1.10 per share and total synergies are expected to be approximately $15 million within a year. Thus, the short term recommendation on the stock climbs to Strong Buy with the Zacks #1 Rank.
However, we do not see any significant recovery in the delivery of new commercial aircraft in the medium term. Huge dependence on government spending and Boeing, its largest customer, are issues of concern. Intense competition in aerospace is likely to have an adverse impact on the company. In the long term we reiterate our Neutral recommendation until any substantial movement in economic conditions are visible.
Read the full analyst report on TGI
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