TransDigm Q2 Earnings Beat, Guides Up - Analyst Blog

TransDigm Group Inc. TDG reported strong second-quarter fiscal 2014 results with adjusted earnings per share of $1.87 comfortably surpassing the Zacks Consensus Estimate of $1.62 by 15.4%. The earnings increased 7.5% compared with $1.74 per share reported in the prior-year quarter.

On a GAAP basis, net income increased 33.0% year over year to $90.4 million while GAAP earnings were reported at $1.49 per share, up from $1.25 per share in the prior-year quarter.

The quarterly results were driven by the company's strategic acquisitions in fiscal 2013, improving commercial aftermarket and strength in commercial aerospace as well as the continuing improvement in the commercial original equipment manufacturing (OEM) business. The growth in earnings was also attributable to favorable year-over-year comparisons, as this time the company did not incur additional costs related to the senior secured credit facility that had been a drag on the earnings in second-quarter 2013. However, the earnings were partially offset by the increase in interest expense and acquisition-related costs in the quarter.

Revenues

Net sales in the quarter totaled $590.8 million, representing a year-over-year increase of 26.9% from $465.6 million reported in the prior-year. Organic net sales growth was up 6.1% from the prior-year period, driven by contribution from the acquisitions of Aerosonic, Airborne, Arkwin as well as Whippany Actuation. Revenues also surpassed the Zacks Consensus Estimate of $585 million.

Margins

TransDigm reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $244.4 million, up 35.6% from $180.2 million in the prior-year quarter.

EBITDA before adjustments was $263.0 million, an increase of 19.9% from $219.3 million in the prior-year quarter.  

Balance Sheet and Cash Flow

Exiting the quarter, the company had cash from operating activities of $220.5 million, while it had cash and cash equivalents of $475.7 million. The company has a long-term debt of $5.7 billion.

Business Update

In the quarter, TransDigm acquired Elektro-Metall Export GmbH (EME GmbH) for about $47.4 million to strengthen its presence in the aerospace electromechanical actuators, electrical and electromechanical components and assemblies, primarily for commercial aircrafts, helicopters and other specialty applications segments.     

Revised Outlook

TransDigm expects to reap positive synergies from its recent acquisitions and has raised its outlook for fiscal 2014 to highlight the benefits of the EME GmbH acquisition.

TransDigm expects fiscal 2014 net sales to be in the range of $2,317 million to $2,367 million versus the earlier range of $2,283 million to $2,343 million.

The net income is anticipated to be in the band of $380 million – $394 million compared with the earlier guidance of $375–$393 million.

Adjusted earnings per share are expected to be in the range of $7.46–$7.70 a share, compared with the previously projected range of $7.35 to $7.65 per share.

Adjusted EBITDA is expected to be in the range of $1,046 million to $1,068 million, versus the previous range of $1,036 million to $1,064 million.

The company expects the GAAP earnings to be in the range of $6.33 to $6.57 per share compared with the previously expected range of $6.24 to $6.54 per share.

TransDigm currently holds a Zacks Rank #2 (Buy). Other stocks that look promising include Alliant Techsystems Inc. ATK, B/E Aerospace Inc. BEAV and Curtiss-Wright Corporation CW. All three have the same rank as TransDigm.