TransDigm (TDG) Q3 Earnings Beat; Sales Rise Y/Y, View Up

After a strong beat last quarter, TransDigm Group Incorporated TDG followed up with another striking beat in its third-quarter fiscal 2016 results. The company raised its fiscal 2016 guidance as well.

The aircraft supplier posted adjusted quarterly earnings (including stock-based compensation adjustments) of $2.94 per share, trumping the Zacks Consensus Estimate of $2.80 by 5%.

The figures fared even better in the year-over-year comparison, registering an increase of almost 37.4% from the year-ago tally of $2.14 per share.

Net income for the quarter came in at $140.6 million, up a whopping 41.9% from the comparable quarter a year ago. The increase in income was driven primarily by growth in net sales, robust performance in the company’s commercial aftermarket segment and successful cost productivity efforts. Lower interest expenses and refinancing costs added to earnings growth.

Inside the Headlines

Net sales for the quarter came in at $797.7 million, representing a year-over-year growth of 15.4%. The top line missed the Zacks Consensus Estimate of $822 million.

Despite the miss, the company’s organic net sales grew about 8.3% in the quarter. Strong growth in commercial aftermarket revenues (up about 8% from the prior year) contributed to the top line. Commercial OEM also contributed to the top-line expansion, growing 4% year over year. Even Defense revenues jumped back on the growth track, rising 3% over the comparable period last year.

TransDigm’s EBITDA (earnings before interest, taxes, depreciation and amortization) escalated 26.5% year over year to $344.6 million, driven by robust sales and strong gross margin expansion.

Acquisitions

Continuing with its robust acquisition strategy, TransDigm wrapped up the purchase of ILC Holdings Inc., the parent company of defense firm Data Device Corporation (“DDC”) for $1 billion, during the quarter. DDC is a provider of data-networking, power-control and motion-control products and software for the defense, aerospace and industrial industries. The firm boasts a strong presence across key military aircraft platforms and a growing presence in the commercial aircraft market. The deal will help TransDigm expand its footprint in the market of highly engineered, proprietary products with significant aftermarket content, while strengthening its presence in the military and commercial aircraft market.

Just last quarter, TransDigm acquired Breeze-Eastern Corporation, which designs and manufactures mission critical electromechanical systems, for about $205 million. The acquisition will strengthen TransDigm’s foothold in the aerospace industry, especially in the niche markets of highly-engineered proprietary aerospace components.

Liquidity & Share Repurchases

TransDigm ended the quarter with cash and cash equivalents of $1.67 billion, significantly up from $714 million as of Sep 30, 2015. The company boosted its cash balance through an offering of additional term loans of $950 million, a private offering of $950 million, higher commitments on its revolving credit facility and some debt refinancing. The proceeds from the above actions were partly used to fund the purchase price of the DDC acquisition.

The company’s long-term debt was $9.95 billion at the end of the quarter compared with $8.11 billion at the end of Sep 2015.

In fiscal 2016 so far, the company has repurchased 1,015,387 shares for an aggregate cost of about $208 million. The company had authorized a new share repurchase plan during the last quarter, comprising buyback of shares worth approximately $450 million, and roughly $341 million worth of shares remain under the new authorization.

Fiscal 2016 Guidance Raised Again

TransDigm raised its top line and earnings guidance for fiscal 2016 once again, incorporating the effect of the DDC acquisition, the present market scenario as well its recent operational performance.

For fiscal 2016, the company upped its guidance for net sales from previous expectations of $3,151–$3,181 million to a range of $3,170–$3,190 million.

Also, it now expects adjusted earnings to come in a range of $11.21–$11.39 per share, up from the prior projections of $11.04–$11.28.

TRANSDIGM GROUP Price and Consensus

TRANSDIGM GROUP Price and Consensus | TRANSDIGM GROUP Quote

Our Take

After displaying erratic growth trends over a number of quarters, we believe that TransDigm is on a solid growth track again. Improvement in the commercial aftermarket, coupled with significant uptick in defense bookings bode well for its growth picture in the coming quarters. In addition, the aircraft business is taking off globally, and TransDigm is well-placed to capitalize on the growth.

TransDigm’s acquired businesses will likely continue being strong growth drivers in the coming times. Further, the company’s efforts to streamline costs will likely translate into strong margin expansion in the quarters ahead.

TransDigm presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense space include Ducommun Inc. DCO, KLX Inc. KLXI and General Dynamics Corporation GD, each holding a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
GENL DYNAMICS (GD): Free Stock Analysis Report
 
TRANSDIGM GROUP (TDG): Free Stock Analysis Report
 
DUCOMMUN INC DE (DCO): Free Stock Analysis Report
 
KLX INC (KLXI): Free Stock Analysis Report
 
To read this article on Zacks.com click here.