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TransDigm (TDG) Q2 Earnings Strong, Sales Rise Y/Y, View Up
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TransDigm Group Incorporated (TDG - Free Report) reported second-quarter fiscal 2018 adjusted earnings of $3.79 per share, growing an impressive 25.1% year over year. The bottom line gained from the favorable impact of the recent tax reforms.
Decent top-line growth and improvements in operating margin also drove earnings. In addition, continued efforts to boost productivity, lower refinancing costs as well as lower acquisition-related costs proved conducive to earnings growth. This was partially offset by higher interest outlay.
Inside the Headlines
Net sales for the reported quarter amounted to $933.1 million, reflecting year-over-year growth of 7.4%. Organic sales grew 6.6%.
Decent growth in Commercial Aftermarket revenues supplemented the top-line performance. Furthermore, contributions from the previously-completed acquisitions boosted overall sales performance during the fiscal second quarter.
TransDigm’s EBITDA (earnings before interest, taxes, depreciation and amortization) grew 9.8% year over year to $463.1 million.
Transdigm Group Incorporated Price, Consensus and EPS Surprise
TransDigm frequently acquires proprietary aerospace businesses with significant aftermarket content, which boosts its footprint in its core market and is in line with its operating strategies. During the quarter, it acquired the Kirkhill engineered elastomers business from Esterline Corporation for $50 million. The Kirkhill business makes specialty seals and other rubber components meant primarily for aerospace and defense markets.
Also, TransDigm completed the sale of Schroth to a private equity fund and certain members of Schroth management for approximately $61 million.
In fiscal 2017, TransDigm had announced the acquisition of three add-on aerospace product lines for a total consideration of roughly $100 million. These product lines mainly comprise proprietary, sole-source products with significant aftermarket content. The product lines are in sync with the company’s long-term plan and highlight its strategy to acquire proprietary aerospace businesses with significant aftermarket content, in a bid to fortify its core business.
The acquired business lines have combined revenues of about $32 million and will be consolidated into TransDigm’s existing businesses. The company financed the acquisitions through existing cash on hand.
These acquisitions will add to TransDigm’s product range with the proprietary products, which enjoy strong position on high use of platforms, robust aftermarket content and an excellent reputation. Products offered include highly engineered aerospace controls, quick disconnect couplings, as well as communication electronics.
Liquidity
TransDigm ended the fiscal second quarter with cash and cash equivalents of $1,011 million, up from $650.6 million as of Sep 30, 2017. At the end of the reported quarter, the company’s long-term debt was $11.4 billion, nearly flat compared with the figure recorded at the end of September 2017.
Fiscal 2018 Guidance
Concurrent with the fiscal second-quarter results, the company raised its revenue and earnings guidance for fiscal 2018 to incorporate the impressive operating performance so far in fiscal 2018, new tax regulations and recent acquisitions. Adjusted earnings per share are now forecast to be in the band of $17.35-$17.99 per share compared with the earlier guided range of $16.95-$17.59 per share. The company had generated earnings of $12.38 per share in fiscal 2017.
Sales are now expected to be in the range of $3,740-$3,820 million (compared with $3,645-$3,725 million guided earlier). Net income from continuing operations is estimated in the band of $902-$938 million, compared with the earlier projection of $906-$942 million, while EBITDA is likely to be in the range of $1,830-$1,880 million.
Our Take
TransDigm’s thriving commercial aftermarket business proved to be a strong growth driver for its fiscal second-quarter results. The aftermarket business comprises 55% of sales, but typically makes up more than 75% of the company’s EBITDA. This translates into consistent revenue generation capacity through all phases of the aerospace cycle. The aftermarket business is expanding as majority of the aircraft bought during the financial crisis are beginning to age, and require more frequent and comprehensive servicing.
We believe stable aftermarkets, which have historically produced higher gross margins, will continue to drive financial performance in the upcoming quarters.
However, softness in business jet, helicopter and freighter revenues, have been hurting the company’s profits. In addition to this, weakness in the global macroeconomic conditions is affecting air travel, adding to the company’s woes. The company is concerned about the future of the commercial transport industry. These factors can play spoilsport for this Zacks Rank #3 (Hold) company in the near term.
CPI Aerostructures surpassed earnings estimates each time in the trailing four quarters, resulting in an impressive average surprise of 43.4%.
Curtiss-Wright also managed to beat estimates each time over the preceding four quarters, delivering a positive earnings surprise of 15.1%.
KLX has a positive average earnings surprise of 10.6% for same time period, having beaten estimates thrice.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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TransDigm (TDG) Q2 Earnings Strong, Sales Rise Y/Y, View Up
TransDigm Group Incorporated (TDG - Free Report) reported second-quarter fiscal 2018 adjusted earnings of $3.79 per share, growing an impressive 25.1% year over year. The bottom line gained from the favorable impact of the recent tax reforms.
Decent top-line growth and improvements in operating margin also drove earnings. In addition, continued efforts to boost productivity, lower refinancing costs as well as lower acquisition-related costs proved conducive to earnings growth. This was partially offset by higher interest outlay.
Inside the Headlines
Net sales for the reported quarter amounted to $933.1 million, reflecting year-over-year growth of 7.4%. Organic sales grew 6.6%.
Decent growth in Commercial Aftermarket revenues supplemented the top-line performance. Furthermore, contributions from the previously-completed acquisitions boosted overall sales performance during the fiscal second quarter.
TransDigm’s EBITDA (earnings before interest, taxes, depreciation and amortization) grew 9.8% year over year to $463.1 million.
Transdigm Group Incorporated Price, Consensus and EPS Surprise
Transdigm Group Incorporated Price, Consensus and EPS Surprise | Transdigm Group Incorporated Quote
Acquisitions & Divestitures
TransDigm frequently acquires proprietary aerospace businesses with significant aftermarket content, which boosts its footprint in its core market and is in line with its operating strategies. During the quarter, it acquired the Kirkhill engineered elastomers business from Esterline Corporation for $50 million. The Kirkhill business makes specialty seals and other rubber components meant primarily for aerospace and defense markets.
Also, TransDigm completed the sale of Schroth to a private equity fund and certain members of Schroth management for approximately $61 million.
In fiscal 2017, TransDigm had announced the acquisition of three add-on aerospace product lines for a total consideration of roughly $100 million. These product lines mainly comprise proprietary, sole-source products with significant aftermarket content. The product lines are in sync with the company’s long-term plan and highlight its strategy to acquire proprietary aerospace businesses with significant aftermarket content, in a bid to fortify its core business.
The acquired business lines have combined revenues of about $32 million and will be consolidated into TransDigm’s existing businesses. The company financed the acquisitions through existing cash on hand.
These acquisitions will add to TransDigm’s product range with the proprietary products, which enjoy strong position on high use of platforms, robust aftermarket content and an excellent reputation. Products offered include highly engineered aerospace controls, quick disconnect couplings, as well as communication electronics.
Liquidity
TransDigm ended the fiscal second quarter with cash and cash equivalents of $1,011 million, up from $650.6 million as of Sep 30, 2017. At the end of the reported quarter, the company’s long-term debt was $11.4 billion, nearly flat compared with the figure recorded at the end of September 2017.
Fiscal 2018 Guidance
Concurrent with the fiscal second-quarter results, the company raised its revenue and earnings guidance for fiscal 2018 to incorporate the impressive operating performance so far in fiscal 2018, new tax regulations and recent acquisitions. Adjusted earnings per share are now forecast to be in the band of $17.35-$17.99 per share compared with the earlier guided range of $16.95-$17.59 per share. The company had generated earnings of $12.38 per share in fiscal 2017.
Sales are now expected to be in the range of $3,740-$3,820 million (compared with $3,645-$3,725 million guided earlier). Net income from continuing operations is estimated in the band of $902-$938 million, compared with the earlier projection of $906-$942 million, while EBITDA is likely to be in the range of $1,830-$1,880 million.
Our Take
TransDigm’s thriving commercial aftermarket business proved to be a strong growth driver for its fiscal second-quarter results. The aftermarket business comprises 55% of sales, but typically makes up more than 75% of the company’s EBITDA. This translates into consistent revenue generation capacity through all phases of the aerospace cycle. The aftermarket business is expanding as majority of the aircraft bought during the financial crisis are beginning to age, and require more frequent and comprehensive servicing.
We believe stable aftermarkets, which have historically produced higher gross margins, will continue to drive financial performance in the upcoming quarters.
However, softness in business jet, helicopter and freighter revenues, have been hurting the company’s profits. In addition to this, weakness in the global macroeconomic conditions is affecting air travel, adding to the company’s woes. The company is concerned about the future of the commercial transport industry. These factors can play spoilsport for this Zacks Rank #3 (Hold) company in the near term.
Stocks to Consider
Some better-ranked stocks in the industry include CPI Aerostructures, Inc. (CVU - Free Report) , Curtiss-Wright Corporation (CW - Free Report) and KLX Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CPI Aerostructures surpassed earnings estimates each time in the trailing four quarters, resulting in an impressive average surprise of 43.4%.
Curtiss-Wright also managed to beat estimates each time over the preceding four quarters, delivering a positive earnings surprise of 15.1%.
KLX has a positive average earnings surprise of 10.6% for same time period, having beaten estimates thrice.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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