Shares of TransDigm Group Inc. (TDG) gained 3.1% in yesterday’s trading session after the company reported strong third-quarter fiscal 2014 results with adjusted earnings (including share based compensation expense) of $1.94 comfortably surpassing the Zacks Consensus Estimate of $1.66 by 16.9%. The earnings improved 10.7% from the prior-year quarter figure of $1.50 per share.
Excluding share based compensation expense, the company reported earnings of $2.02 compared with $1.89 per share in the year-ago period.
In June, the company had refinanced its capital structure, which translated into one-time costs of $88.6 million or $1.55 per share. Including this cost, the company reported GAAP loss of $1.66 compared with GAAP earnings of 71 cents a share in the year-ago period.
The additional finance was utilized by the company to pay dividend of $25.00 per share and repay $1.6 billion for its 7.75% Senior Subordinated Notes that was due in 2018.
Net sales in the quarter came in at $610.6 million, representing a year-over-year increase of 25.0% from $488.6 million reported in the prior-year. Organic net sales rose 6.9% year over year. This apart, revenue growth was driven by the acquisitions of Aerosonic, Airborne, Arkwin, Whippany Actuation and the most recent Elektro-Metall (EME). Revenues also surpassed the Zacks Consensus Estimate of $604 million.
The quarterly results were driven by the company’s strategic acquisitions in fiscal 2013, the ongoing improvement in the commercial aftermarket and strength in commercial aerospace business. However, earnings were partially offset by the increase in interest expense and acquisition-related costs in the quarter.
Further, the company’s business in the military sector remained sluggish with revenues declining year over year. However, the bookings in the sector witnessed an uptrend in the quarter.
TransDigm reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $275.6 million, an increase of 18.8% from $231.9 million in the prior-year quarter.
Other Financial Details
TransDigm ended the quarter with cash and cash equivalents of $729.1 million, long-term debt of $7,251.4 million and stockholder’s deficit of $1,591.5 million.
The company reported cash from operating activities for the 39-week period ended Jun 28, 2014 of $349.5 million, compared with $267.0 million reported in the prior-year period.
Revised Outlook
TransDigm provided an updated guidance for fiscal 2014 to include the impact of refinancing activities in the quarter.
The company trimmed its guidance for earnings per share to be in the range of $2.96 to $3.06 per share compared with the previously projected range of $6.33 to $6.57 per share.
The company also narrowed its outlook for adjusted earnings per share in the range of $7.47–$7.57 a share, compared with the previously projected range of $7.46 to $7.70 per share.
The Zacks Consensus Estimate for fiscal 2014 earnings is currently pegged at $6.49 per share.
The net income is likely to be between $293 million to $299 million, down from the previously projected range of $380 million – $394 million.
TransDigm expects fiscal 2014 net sales to be in the range of $2,344 million – $2,370 million versus the earlier range of $2,317 million to $2,367 million.
EBITDA is now expected in the range of $1,061 million to $1,073 million, higher than the previous range of $1,046 million to $1,068 million.
Zacks Rank
TransDigm currently holds a Zacks Rank #4 (Sell). Other better-ranked stocks that look promising at the moment include Spirit AeroSystems Holdings, Inc. (SPR), CAE Inc. (CAE) and Curtiss-Wright Corp. (CW). While Spirit AeroSystems sports a Zacks Rank #1 (Strong Buy), both CAE and Curtiss-Wright carry a Zacks Rank #2 (Buy).
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