747-8 Woes Hit Triumph, Costs Spiral

Zacks

Shares of Triumph Group Inc. (TGI) fell approximately 8% to $72.30 on Wednesday, Sep 18, 2013, after it forewarned that its fiscal year 2014 profit would be impacted by charges primarily associated with the 747-8 program.

Triumph Group manufactures aircraft structures and is a supplier for the aerospace giant The Boeing Co.'s (BA) 747-8 aircraft. The company expects to incur $68 million or 83 cents per share in pre-tax additional program costs this fiscal year ending March 2014 for slashed profits expected from its 747-8 program.

Of the estimated incremental costs, about $44.0 million, or 53 cents per share, would be accounted for in the company's second quarter fiscal 2014 results. About $11 million of the costs, or 14 cents a share, will be recorded in the third quarter and the balance $13 million, or 16 cents a share, will be included in the final quarter.

Much to Triumph’s woes 747-8 sales have been weak at Boeing for some time now, forcing the company to cut down on production while its other models continued to do well. Higher labor and transportation costs have further damaged Triumph’s profit margins on the program to the mid-single digits.

Triumph pointed out that its 747-8 production lot will be 80% completed by the end of the second quarter and will likely be concluded by the end of the third quarter. Owing to escalating costs, Triumph’s expected profitability on the next production lot has declined substantially. However, the present and future production lots will likely be profitable.

Wayne, Pa.-based Triumph Group offers a variety of products and services to the aerospace industry. Triumph produces a wide range of aircraft parts including hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components, auxiliary power units, and avionics and aircraft instruments.

The company’s earnings during fiscal first quarter 2014 ended Jun 31, 2013, beat the Zacks Consensus Estimate as well as the year-earlier adjusted profit level on the back of solid execution and lower costs.

Triumph will update its full-year guidance when it reports second-quarter results. Earlier, it had guided sales for fiscal year 2014 in the range of $3.8 billion to $4.0 billion and earnings per share from continuing operations of $5.65 to $5.75 per diluted share. Adjusted earnings per share from continuing operations for fiscal year 2014 were expected in a band of $6.30 to $6.40 per diluted share.

The company presently retains a short-term Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its short-term Zacks Rank #1 (Strong Buy) peers Alliant Techsystems Inc. (ATK) and Elbit Systems Ltd. (ESLT).

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