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Why TransDigm Shares Fell Despite Strong Earnings Beat? - Analyst Blog

TransDigm Group Inc.TDG reported second-quarter fiscal 2015 adjusted earnings (with share-based compensation adjustments) of $2.02, which exceeded the Zacks Consensus Estimate of $1.90 by around 6%.

Transdigm Group Inc. - Earnings Surprise | FindTheCompany

Also, on a GAAP basis, the company reported earnings per share of $1.96, up about 32% from $1.49 per share in the year-ago period. However, shares of the company lost 2.43% during the regular trading session on May 5, probably on broader market concerns.

The results were driven by rise in net sales, strong performance of proprietary products, decline in tax rates, and acquisitions and amortization related expenses. However, earnings were partially offset by an increase in interest expenses.

Quarterly Details

Net sales in the quarter came in at $619.0 million, representing a year-over-year increase of 4.8%. However, it came below the Zacks Consensus Estimate of $634 million.

The year-over-year growth in net sales was primarily driven by strong performance of acquired firm, Elektro-Metall (EME) and growth in organic sales.

TransDigm's earnings before interest, taxes, depreciation and amortization (EBITDA) escalated 12.8% year over year to $275.6 million.

In the quarter under review, TransDigm acquired the cargo handling business - Telair Cargo Group - of AAR Corp. AIR for around $725 million (read more: TransDigm to Buy AAR Corp's Telair Cargo Group for $725M ).

Liquidity

TransDigm ended the quarter with cash and cash equivalents of $392.5 million, as compared to $1.01 billion as of Dec 31, 2014. The company's long-term debt stood at $7.30 billion as compared to $7.23 billion flat at the end of Dec 2014.

On the other hand, TransDigm's stockholder's deficit stood at $1.33 billion, as against $1.46 billion as of Dec 31, 2014.

2015 Guidance Raised

Based on current expectations of the fiscal year, the projection of positive synergies from recent Telair and Franke acquisitions and improved tax rate, TransDigm has raised its guidance for fiscal 2015.

TransDigm increased its GAAP earnings per share in the range of $7.56 - $7.82, from the prior guidance of $7.51 - $7.77 and adjusted earnings per share in the range of $8.49 - $8.75 from $8.03 - $8.29. Also, the company raised its net sales guidance in the range of $2,660 - $2,690 million from $2,510 - $2,550 million.

Subsequent to Quarter-end Activities

Following the end of the second quarter fiscal 2015, TransDigm disclosed the acquisition of the aerospace business of Franke Aquarotter GmbH - one of the leading German sanitary specialists - for around $75 million (read more: TransDigm Buys Franke Aquarotter's Aerospace Business ).

Moreover, in April, TransDigm inked a definitive deal to buy the aerospace business of Pexco LLC for about $496 million in cash.

Our View

Although TransDigm marginally missed revenue estimates, the year-over-year growth in the financials is encouraging. Going forward, the company is expected to draw benefits from the strong performance of its commercial transport aftermarket and strategic acquisitions.

TransDigm currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks that look promising at the moment include Spirit AeroSystems Holdings, Inc. SPR and CAE Inc. CAE . Both stocks carry a Zacks Rank #2 (Buy).

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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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