Triumph Group Misses on Earnings, Revs
Triumph Group Inc.’s (TGI) adjusted earnings from continuing operations for the fiscal third quarter 2014 ended Dec 31, 2013, came in at 99 cents, 17.5% less than the Zacks Consensus Estimate of $1.20 per share. The bottom line also decreased 32.2% from the year-earlier adjusted profit of $1.46 per share.
Including the costs related to the Jefferson Street facility move, refinancing fees and pension settlement charges, GAAP earnings per share reported were 67 cents, down from $1.43 per share in the prior-year quarter.
Operational Highlights
In the reported quarter, net sales increased 2.8% year over year to $915.8 million. The year-over-year increase reflects a significant rise in revenues at Aerospace Systems partially offset by a decline in Aerostructures and Aftermarket Services revenues.
The reported figure however missed the Zacks Consensus Estimate of $968 million.
However, organic sales for the quarter decreased 6% primarily due to production rate cuts on The Boeing Company’s (BA) 767 and 747-8 programs, a decrease in military sales and customer deferrals.
Operating income in the fiscal third quarter decreased approximately 36.9% year over year to $84.8 million primarily due to the decline in contribution from Aerostructures segment.
Segment Details
Aerostructures: Segment sales were $637.2 million, down 5.9% year over year. Organic sales were down 9.0% due to production rate cuts on the 767 and 747-8 programs, a decrease in military sales and customer deferrals.
Operating income was $ 54.0 million, down 54.0% year over year.
Aerospace Systems: Segment sales jumped 50.0% year over year to $211.4 million. The significant increase was driven by the benefits from the acquisitions of Triumph Processing-Embee Division and Triumph Engine Control Systems. Organic sales for the quarter increased 2.0%.
Operating income for the segment was $32.5 million, down 57.8% year over year.
Aftermarket Services: Segment revenue was $69.6 million, down 6.7% year over year due to the impact of the Instrument Companies divestiture, however the organic sales were up 2.0%.
Operating income was $9.3 million, down 5.7% year over year.
Financial Update
Exiting the third quarter fiscal 2014, Triumph’s cash balance was $25.4 million compared with $32.0 million as of Mar 31, 2013. Total debt was $1,621.5 million, up from $1,329.9 million as of Mar 31, 2013. The debt-to-capitalization ratio in the reported quarter stood at 41.0%.
Guidance
For fiscal year 2014, the company reaffirmed its sales forecast of $3.8 billion. Adjusted earnings per share from continuing operations for fiscal year 2014 are expected to be $4.75 per share. This excludes costs related to the Jefferson Street move and the pension settlement charge.
Including the impact of Boeing’s recent announcement to reduce the production rate on the 747-8 to 1.5 per month and weakness in the military sector, the company expects earnings per share of $4.10 for fiscal year 2014.
Our View
Triumph Group’s top and bottom line failed to beat the Zacks Consensus Estimate. However, the company continued to progress well on its Jefferson Street to Red Oak move. Also, the company successfully completed the acquisition of General Donlee Canada, Inc. and refinanced their high yield debt due 2017.
That said, acquisitions have weighed upon the company’s cash position. Also, the company is burdened with additional program costs primarily associated with the 747-8 program and production rate cuts on the 767 and 747-8 programs. Other factors that could act as headwinds include cyclicality in the aerospace market, lower demand on the military front and some significant customer deferrals. Triumph has a Zacks Rank #4 (Sell).
Among the stocks worth considering in the space are AeroVironment, Inc.
(AVAV) and Transdigm Group (TDG), both with a Zacks Rank #1 (Strong Buy).
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