Earnings Preview: TransDigm Group - Analyst Blog
November 15 2011 - 10:28AM
Zacks
TransDigm Group Incorporated (TDG) is slated to
release its fourth-quarter 2011 results on Thursday, November 17,
2011. The current Zacks Consensus Estimate for fourth quarter
earnings per share (EPS) is $1.16, representing an annualized
growth of 15.78%. For fiscal 2011, the Zacks Consensus Estimate is
$3.02, representing an annualized growth of 16.76%.
TransDigm’s earnings exceeded the Zacks Consensus Estimate over
the previous trailing three quarters with an average positive
surprise of 105.20%.
Third Quarter Highlights
TransDigm reported third-quarter fiscal 2011 earnings per share
from continuing operations of $1.01, above the Zacks Consensus
Estimate by 1 cent and prior-year earnings of 83 cents. The
company’s income in the quarter was negatively affected by
acquisition-related expenses of $4.3 million and higher interest
expense related to the refinancing of the company's debt structure
in the first quarter of fiscal 2011.
Net sales were $325.2 million, a rise of 51.8% year over year.
Organically, sales during the quarter increased by approximately
13.2%, driven by improved commercial aftermarket and OEM markets,
partially offset by a slight decline in defense sales. Sales during
the quarter were also aided by acquisitions of Semco Instruments,
McKechnie Aerospace and Talley Actuation.
Agreement and Magnitude of Estimate
Revisions
In the last 30 days, of the analysts providing estimates on the
stock, none have changed their estimate for the fourth quarter or
for fiscal 2011. For fiscal 2012, one analyst increased its
estimate.
In the last 7 days, none of the analysts changed their estimate
for the fourth quarter or for fiscal 2011 and 2012.
Magnitude of Estimate Revisions
There is no revision of estimate in the last 7 days or 30
days.
Our Take
The company competes on the basis of engineering, manufacturing
and marketing of high quality products that meet or exceed the
performance and maintenance requirements of customers through
consistent and timely delivery along with superior customer service
and support. The industry’s stringent regulatory certification and
technical requirements with huge investment necessary for 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 processes. In
addition, concerns regarding safety and flight delays, if products
are unavailable or not dependable, are reasons for its customers to
continue their long-term supplier relationships.
The company’s top ten customers for fiscal year 2010 accounted
for approximately 48% of its net sales. Products supplied to many
of its customers are used on multiple platforms. For fiscal 2010,
Boeing (which includes Aviall, Inc., a distributor of commercial
aftermarket parts to airlines throughout the world) accounted for
approximately only 14% of net sales.
As a result, a reduction in purchasing by one of its
largestcustomers due to economic downturn, decreased production and
strike, has a material adverse effect on net sales, gross margin
and net income. Major competitors of the company are
Goodrich Corp. (GR), Honeywell
International Inc. (HON) and United Technologies
Corp. (UTX).
Overall, we believe Transdigm is set to deliver good financial
results in the fourth quarter of 2011. We continue to maintain a
Neutral rating on Transdigm for the long term. The company,
however, has a Zacks #3 Rank (Hold recommendation) over the next
one-to-three months.
GOODRICH CORP (GR): Free Stock Analysis Report
HONEYWELL INTL (HON): Free Stock Analysis Report
TRANSDIGM GROUP (TDG): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
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