TransDigm (TDG) Beats on Q1 Earnings, Raises FY17 Guidance

TransDigm Group IncorporatedTDG reported an earnings beat in first-quarter fiscal 2017, for the fourth time in a row. The company's adjusted earnings came in at $2.45 per share (including stock-based compensation adjustments), comfortably beating the Zacks Consensus Estimate of $2.27.

The figures fared even better in year-over-year comparison, registering a jump of 14.5% from the year-ago tally of $2.14 per share.

The year-over-year bottom-line growth came on the back of robust top-line performance and improvements in operating margin. Also, consistent efforts to boost productivity, favorable product mix and lower effective tax rate proved conducive to the earnings growth.

Inside the Headlines

Net sales for the quarter came in at $814.0 million, representing an impressive year-over-year growth of 16.0%. In addition, the top line surpassed the Zacks Consensus Estimate of $784 million.

Decent growth in Commercial Aftermarket (up 3.5%) and Defense (up 2.5%) revenues supplemented the top-line performance. Furthermore, contributions from the previously completed acquisitions and favorable product mix supported the sales performance. Robust commercial transport bookings and strong aftermarket revenues drove the growth of the Commercial Aftermarket and Defense segments, respectively.

TransDigm's EBITDA (earnings before interest, taxes, depreciation and amortization) grew 20.5% year over year to $319.4 million.


TransDigm ended the quarter with cash and cash equivalents of $972.4 million, down from $1587.0 million as of Sep 30, 2016. At the end of Dec 31, 2016, the company's long-term debt was $10.6 billion, compared with $9.9 billion at the end of Sep 2016.

During the quarter, the company raised $1.2 million of term loans. These proceeds were used to partially fund a special dividend of $24.00 per share, extend maturities and reduce interest expense on about $500 million of debt. Subsequent to the fiscal quarter end, TransDigm repurchased 666,755 shares of its common stock at an aggregate cost of approximately $150.0 million under the existing stock repurchase program.

Transdigm Group Incorporated Price, Consensus and EPS Surprise

Transdigm Group Incorporated Price, Consensus and EPS Surprise | Transdigm Group Incorporated Quote

Fiscal 2017 Guidance

Concurrent with its fiscal first-quarter earnings release, TransDigm Group raised its fiscal 2017 guidance. Now, the company projects net sales to be in the range of $3,520-$3,570 million, compared with the earlier guided range of $3,515-$3,565 million. Similarly, adjusted earnings are forecast to lie within the range of $12.02-$12.30 per share, compared with the earlier guidance of $11.84-$12.12 per share.

Additionally, TransDigm Group projected net income to lie in the band of $609-$625 million and EBITDA to be in the range of $1,686-$1,710 million. The earlier guided range of net income and EBITDA were $577-$593 million and $1,671-$1,695 million, respectively.

Our Take

TransDigm Group delivered better-than-expected first-quarter fiscal 2017 results. The company's constant focus on value-based operating strategy manifested itself in both the top- and bottom-line beats. About 90% of its sales were generated by proprietary products, that is, products for which the company owns the intellectual property. This translates into consistent revenue generation capacity through all phases of the aerospace cycle. We also believe that stable aftermarkets, which have historically produced higher gross margins, will continue to drive financial performance for the upcoming quarters.

However, on the negative side, softness in business jet, helicopter and freighter revenues, have been hurting its profits. In addition, weakness in the global macroeconomic conditions is impacting air travel, adding to the company's woes. The company is concerned about the commercial transport industry in the coming times as well. These factors can play spoilsport for the Zacks Rank #4 (Sell) company in the near term.

Key Picks

Better-ranked stocks in the broader sector include L3 Technologies, Inc. LLL , Northrop Teledyne Technologies Incorporated TDY and Huntington Ingalls Industries, Inc. HII . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

L3 Technologies, Inc. has an excellent earnings surprise history, with an average beat of 15.0% for the trailing four quarters.

Teledyne Technologies has an average positive earnings surprise of 11.0% for the trailing four quarters, beating estimates all through.

Huntington Ingalls managed to beat estimates twice for as many numbers of misses, over the trailing four quarters. It has a positive average earnings surprise of 7.2%.

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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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