TransDigm Group Incorporated
CEO : Dr. Kevin M. Stein Ph.D.
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q1 | 17.0% YoY | 29.1% | 45.1% | 2023-02-07 |
Kevin Stein says,
Commercial Aerospace Market Recovery
- Positive growth in Q1 results compared to the same prior year period
- Encouraging progression of the commercial aerospace market recovery
- Trends in the commercial aerospace market remain favorable as demand for travel remains robust
- International air traffic is closing in on the domestic travel recovery, and China reopened its air travel in January with the lifting of its pandemic restrictions
- However, there is still progress to be made for the industry as demand for air travel is still depressed
Financial Performance
- Very healthy growth in total commercial revenues and bookings
- Bookings outpaced revenues in all 3 major market channels: commercial OEM, commercial aftermarket, and defense
- EBITDA as defined margin of 50% in the quarter
- Strong operating cash flow generation in Q1 of almost $380 million
- Ended the quarter with close to $3.3 billion of cash
Capital Allocation Priorities
- First priority is to reinvest in businesses
- Second priority is to do accretive M&A
- Third priority is to return capital to shareholders via share buybacks or dividends
- Fourth option paying down debt seems unlikely at this time
Fiscal 2023 Outlook
- Increased full fiscal year ’23 sales and EBITDA as defined guidance by $65 million
- The midpoint of revenue guidance is now $6.155 billion, up approximately 13%
- High teens percentage range growth rate for commercial aftermarket revenue
- Earnings per share is anticipated to be $22.17, up approximately 29%
Leadership Change
- General Counsel, Chief Compliance Officer, and Secretary Halle Martin retired
- Associate General Counsel Jes Warren promoted to fill the role
Michael Lisman says,
Organic Growth Rate of 15%
- The company experienced a 15% organic growth rate in the first quarter of the year.
- The growth was driven by the rebound in commercial OEM and aftermarket end markets.
Cash and Liquidity Status
- The company’s free cash flow was approximately $400 million in the first quarter.
- The company ended the first quarter with approximately $3.3 billion of cash on the balance sheet.
- Net debt-to-EBITDA ratio was 6x, down from 6.4x at the end of last quarter, putting them at the 5-year pre-COVID average level.
- The company’s cash interest coverage ratios are currently in line with where they have historically operated the business.
- The company completed an extension of their nearest maturity term loan, pushing the maturity date from mid-2024 out into 2027.
- Over 75% of the company’s total $20 billion gross debt balance is at a fixed rate through a combination of fixed rate notes and interest rate caps and swaps through 2025.
Interest Expense and Debt Management
- As a result of the loan refinancing, the company’s interest expense estimate for FY ’23 slightly increased.
- The company is proactively and prudently managing their debt maturity stacks by pushing out any near-term maturities and utilizing hedging instruments to lock in cash interest costs.
- The company remains in good position with adequate flexibility to pursue M&A or return cash to shareholders via share buybacks or dividends during fiscal ’23.
Q & A sessions,
Capital Deployment
- The company is always looking at capital deployment options in order to be strategic and efficient with shareholders’ capital.
- The company wants to have enough capital at all times for M&A opportunities.
- The company will give back capital if they are unable to find a use for it.
Leverage Ratio
- The current leverage ratio is at 6x which is historically where the company was in a lower interest rate environment.
- The company feels comfortable with the current leverage ratio and believes it’s safe to say that they will stay at the 6x ballpark with some movement this way or that way, consistent with the last 5 years of history or so.
- No real material change with the approach to leverage is expected.
Acquisition
- The company could use a little bit of debt for a good acquisition candidate, though it would add EBITDA.
No bad stock 