TransDigm Group Incorporated (TDG) provided its updated fiscal 2011 revenues and EBITDA guidance at its annual investors meeting. EBITDA outlook for the year was increased at both the ends whereas revenue guidance surged at the lower level but plunged at the upper level.
The revision of the guidance was done on the basis of prevailing market conditions and excluded the effect of any prospective acquisitions or divestitures.
As per the revised outlook, the company changed its revenues from continuing operations from the range of $1,172 million to $1,192 million to a new range of $1,179 million to $1,189 million. The prior guidance included approximately $11 million from the distribution business, which is at present included in discontinued operations. The company expects higher revenue in comparison to fiscal 2010 revenue of $828 million.
EBITDA outlook was increased to a range of $574 million to $580 million from the prior range of $562 million to $572 million. The current year expectation is above fiscal 2010 EBITDA of $412 million.
The company competes on the basis of engineering, manufacturing and marketing high quality products that meet or exceed the performance and maintenance requirements of customers with consistent and timely delivery and superior customer service and support. The industry’s stringent regulatory, certification and technical requirements, and the investments necessary in the development and certification of products, create barriers to entry for potential new competitors. As long as customers receive products that meet or exceed expectations and performance standards, they will have a reduced incentive to certify another supplier due to the cost and time of the technical design and testing certification process. In addition, concerns regarding safety and flight delays if products are unavailable or undependable, are reasons for its customers to continue long-term supplier relationships.
However, the military and defense market is significantly dependent upon government budget trends, particularly the DOD budget. In addition to normal business risks, its supply of products to the United States Government is subject to unique risks largely beyond its control.
Based in Cleveland, Ohio, TransDigm Group Inc.designs, produces, and supplies engineered aircraft components for use on commercial and military aircraft. The company operates principally in the US. Major competitors of the company are Goodrich Corp. (GR), Honeywell International Inc. (HON) and United Technologies Corp. (UTX).
We continue to maintain a Neutral rating on TransDigm, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.
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