TransDigm’s (NYSE:TDG) Q3 Earnings Results: Revenue In Line With Expectations

November 07, 2024 at 07:33 AM EST

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Aerospace and defense company TransDigm (NYSE: TDG) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 18% year on year to $2.19 billion. On the other hand, the company’s full-year revenue guidance of $8.85 billion at the midpoint came in slightly below analysts’ estimates. Its non-GAAP profit of $9.83 per share was 5.9% above analysts’ consensus estimates.

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TransDigm (TDG) Q3 CY2024 Highlights:

Revenue: $2.19 billion vs analyst estimates of $2.17 billion (slight beat)
Adjusted EPS: $9.83 vs analyst estimates of $9.28 (5.9% beat)
EBITDA: $1.15 billion vs analyst estimates of $1.13 billion (2% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $8.85 billion at the midpoint, in line with analyst estimates and implying 11.5% growth
Adjusted EPS guidance for the upcoming financial year 2025 is $36.32 at the midpoint, missing analyst estimates
EBITDA guidance for the upcoming financial year 2025 is $4.69 billion at the midpoint, in line with analyst expectations
Gross Margin (GAAP): 57.6%, down from 58.9% in the same quarter last year
Operating Margin: 43.2%, down from 46.2% in the same quarter last year
EBITDA Margin: 52.6%, in line with the same quarter last year
Market Capitalization: $77.58 billion

"I am very pleased with our team's performance and the overall operating results for the fourth quarter and full year of fiscal 2024," stated Kevin Stein, TransDigm Group's President and Chief Executive Officer.

Company Overview

Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE: TDG) develops and manufactures components and systems for military and commercial aviation.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Over the last five years, TransDigm grew its sales at a decent 8.7% compounded annual growth rate. This is a useful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. TransDigm’s annualized revenue growth of 20.9% over the last two years is above its five-year trend, suggesting its demand recently accelerated. TransDigm Year-On-Year Revenue Growth

This quarter, TransDigm’s year-on-year revenue growth was 18%, and its $2.19 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11.5% over the next 12 months, a deceleration versus the last two years. This projection is still noteworthy and illustrates the market sees success for its products and services.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

TransDigm has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 40.6%.

Analyzing the trend in its profitability, TransDigm’s annual operating margin rose by 10.2 percentage points over the last five years, showing its efficiency has meaningfully improved.

In Q3, TransDigm generated an operating profit margin of 43.2%, down 3.1 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

TransDigm’s EPS grew at a remarkable 14.6% compounded annual growth rate over the last five years, higher than its 8.7% annualized revenue growth. This tells us the company became more profitable as it expanded.

TransDigm Trailing 12-Month EPS (Non-GAAP)

We can take a deeper look into TransDigm’s earnings to better understand the drivers of its performance. As we mentioned earlier, TransDigm’s operating margin declined this quarter but expanded by 10.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

For TransDigm, its two-year annual EPS growth of 43.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, TransDigm reported EPS at $9.83, up from $8.03 in the same quarter last year. This print beat analysts’ estimates by 5.9%. Over the next 12 months, Wall Street expects TransDigm’s full-year EPS of $32.23 to grow by 20.5%.

Key Takeaways from TransDigm’s Q3 Results

It was good to see TransDigm beat analysts’ revenue expectations slightly and beat EBITDA and EPS expectations by more convincing amounts this quarter. The company initiated fiscal 2025 guidance (its fiscal year 2024 ended this quarter), with revenue in line and EPS below. Overall, the quarter was solid and the guidance was mixed. The stock traded up 2% to $1,410 immediately following the results.

TransDigm didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.

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