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TransDigm Reports Choppy Q1, Earnings Miss, Shares Dive

Industrial goods company TransDigm Group IncorporatedTDG continued its choppy reporting history with weak results for first-quarter fiscal 2016, as earnings of $1.97 per share lagged the Zacks Consensus Estimate of $2.05 by 3.9%. Investors were severely disappointed with the company's results, with shares slumping nearly 13% in yesterday's trading session.

However, earnings fared better in year-over-year comparisons, as quarterly net income of $114.9 million rose 20% from the comparable quarter a year ago.

The increase in net income was driven primarily by growth in net sales, robust performance of proprietary products and cost productivity efforts. However, earnings were partially offset by an increase in interest expenses and certain acquisition-based costs.

Inside the Headlines

Net sales for the quarter were $701.7 million, representing a year-over-year increase of 19.6%. However, the top line still missed the Zacks Consensus Estimate of $722 million significantly.

In spite of the significant year-over-year growth in top line, it's notable that the company's organic sales actually declined in the quarter. The decline was more than offset by the TransDigm's acquisitions, which contributed about $121.4 million of the increase in net sales.

TransDigm's acquired businesses, which lifted sales for the quarter include Telair Cargo Group, the aerospace business of Franke Aquarotter GmbH, the assets of the aerospace business of Pexco LLC and PneuDraulics, Inc.

The company witnessed modest growth in commercial transport OEM and aftermarket revenues, which were counteracted by declines in business jet and helicopter revenue.

TransDigm's earnings before interest, taxes, depreciation and amortization (EBITDA) escalated 15.2% year over year to $302.2 million.

Acquisitions

Subsequent to the end of the quarter under review, TransDigm completed the tender offer for aircraft and weapons lifting and pulling systems maker Breeze-Eastern Corporation 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. (Read more: TransDigm to Acquire Breeze-Eastern in a $206M Deal )

Liquidity & Share Repurchases

TransDigm ended the quarter with cash and cash equivalents of $805.3 million compared with $714 million as of Sep 30, 2015. The company's long-term debt was $8.1 billion almost flat compared with the figure at the end of September 2015.

Also, during the quarter, the company repurchased 323,868 shares at an aggregate cost of about $70.8 million. Subsequent to the quarter end, the company authorized a new share repurchase plan, comprising buyback of up to $450 million worth of shares.

Fiscal 2016 Guidance Raised

TransDigm expects to witness moderate revenue growth in fiscal 2016. The company updated its guidance for the year to reflect the recent acquisition of Breeze-Eastern, the present market scenario as well its recent operational performance. However, assuming there are no further acquisition-related expenses, the company believes that the upcoming fiscal year would offer higher value for its shareholders.

For full-year fiscal 2016, the company raised its guidance for net sales from $3,070-$3,120 million to a range of $3,144-$3,188 million.

Also, it now expects adjusted earnings to come in a range of $10.65-$10.89 per share, up from the previously guided range of $10.33-$10.57 per share.

TransDigm presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense equipment industry are Rockwell Collins Inc. COL , AeroVironment, Inc. AVAV and Rolls Royce Holdings plc RYCEY , each sporting a Zacks Rank #2 (Buy).

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ROCKWELL COLLIN (COL): Free Stock Analysis Report

TRANSDIGM GROUP (TDG): Free Stock Analysis Report

AEROVIRONMENT (AVAV): Free Stock Analysis Report

ROLLS ROYCE PLC (RYCEY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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