TransDigm Group Reports Fiscal 2014 Second Quarter Results

CLEVELAND, May 6, 2014 /PRNewswire/ — TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the second quarter ended March 29, 2014.
Highlights for the second quarter include:
Net sales of $590.8 million, up 26.9% from $465.6 million;
EBITDA As Defined of $263.0 million, up 19.9% from $219.3 million;
Net income of $90.4 million, up 33.0% from $67.9 million;
Earnings per share of $1.49, up 19.2% from $1.25;
Adjusted earnings per share of $1.87, up 7.5% from $1.74; and
Upward revision to fiscal 2014 financial guidance.

Net sales for the quarter rose 26.9% to $590.8 million from $465.6 million in the comparable quarter a year ago. Organic net sales grew approximately 6.1%. The contribution from the acquisitions of Aerosonic, Airborne, Arkwin and Whippany Actuation accounted for the balance of the increase in net sales.

Net income for the quarter rose 33.0% to $90.4 million, or $1.49 per share, compared to $67.9 million, or $1.25 per share, in the comparable quarter a year ago. The prior quarter included one-time costs attributable to the refinancing of our senior secured credit facility in February 2013 of $20.5 million, net of tax, or $0.38 per share. The remainder of the increase in net income primarily reflects the growth in net sales described above partially offset by higher interest expense and acquisition-related costs. The increase in interest expense was primarily due to an increase in outstanding borrowings from $4.3 billion to $5.7 billion primarily to fund the $22.00 per share dividend paid in July 2013. The current quarter included acquisition-related costs of $10.9 million, net of tax, or $0.19 per share. The comparable quarter a year ago reflected acquisition-related costs of $1.7 million, net of tax, or $0.02 per share.

Earnings per share in the current quarter were reduced by $0.10 per share representing dividend equivalent payments of $5.5 million related to the accelerated vesting of 0.2 million stock options under the “market sweep” provision for options granted in November 2011.

Adjusted net income for the quarter rose 12.3% to $106.6 million, or $1.87 per share, from $95.0 million, or $1.74 per share, in the comparable quarter a year ago. The adjusted earnings per share increase of 7.5% was lower than the increase in adjusted net income of 12.3% as a result of higher weighted average shares of 57.1 million, up from 54.5 million in the prior year period.

EBITDA for the quarter increased 35.6% to $244.4 million from $180.2 million for the comparable quarter a year ago. EBITDA As Defined for the period increased 19.9% to $263.0 million compared with $219.3 million in the quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 44.5%.

“We are pleased with our operating results for both the fiscal second quarter and year-to-date periods,” stated W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer. “Underlying trends supporting our commercial aerospace markets continue to be positive with ongoing recovery in the commercial aftermarket and continued growth in commercial OEM. After adjusting for dilution of almost three margin points from the acquisitions completed in fiscal 2013 and first half of fiscal 2014, our year-to-date EBITDA As Defined margin was approximately 48%, an improvement of approximately one margin point over the prior year.”

As previously reported on March 6, 2014, TransDigm Group acquired Elektro-Metall Export GmbH (EME) for approximately $49.5 million. EME manufactures proprietary, highly engineered aerospace electromechanical actuators, electrical and electromechanical components and assemblies primarily for commercial aircraft, helicopters and other specialty applications.

Year-to-Date Results
Net sales for the twenty-six week period ended March 29, 2014 rose 25.0% to $1,120.1 million from $896.0 million in the comparable period last year. Organic net sales grew approximately 7.5%. The contribution from the acquisitions of Aerosonic, Airborne, Arkwin and Whippany Actuation accounted for the balance of the increase in net sales.

Net income for the twenty-six week period increased 24.2% to $176.5 million, or $2.93 per share, compared with $142.1 million, or $1.91 per share, in the comparable period last year. The prior year included one-time costs attributable to the refinancing of our senior secured credit facility in February 2013 of $20.5 million, net of tax, or $0.38 per share. The increase in net income primarily reflects the growth in net sales described above partially offset by higher interest expense and acquisition-related costs. The increase in interest expense was primarily due to an increase in outstanding borrowings from $4.3 billion to $5.7 billion primarily to fund the $22.00 per share dividend paid in July 2013.The twenty-six week period ended March 29, 2014 included acquisition-related costs of $16.8 million, net of tax, or $0.29 per share. The comparable period a year ago reflected acquisition-related costs of $5.0 million, net of tax, or $0.09 per share.

Earnings per share were reduced in both fiscal 2014 and 2013 by $0.17 per share and $0.70 per share respectively, representing dividend equivalent payments made during each fiscal year.

Adjusted net income for the twenty-six week period rose 13.6% to $201.5 million, or $3.53 per share, from $177.3 million, or $3.26 per share, in the comparable period a year ago. The adjusted earnings per share increase of 8.3% was lower than the increase in adjusted net income of 13.6% as a result of higher weighted average shares of 57.0 million, up from 54.5 million in the prior year period.

EBITDA for the twenty-six week period increased 29.3% to $478.8 million from $370.5 million for the comparable period a year ago. EBITDA As Defined for the period increased 20.6% to $506.5 million compared with $420.2 million in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the period was 45.2%.

Please see the attached tables for a reconciliation of net income to EBITDA, EBITDA As Defined, and adjusted net income; a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined, and a reconciliation of earnings per share to adjusted earnings per share for the periods discussed in this press release.

Fiscal 2014 Outlook
Mr. Howley continued, “We are increasing the full year fiscal 2014 guidance primarily to reflect the recent acquisition of EME, performance experienced to date and our current expectations for the second half of our fiscal year.”

The Company is adjusting full year fiscal 2014 guidance, which assumes no additional acquisitions, as follows:
Net sales are anticipated to be in the range of $2,317 million to $2,367 million (previously in the range of $2,283 million to $2,343 million) compared with $1,924 million in fiscal 2013;
EBITDA As Defined is anticipated to be in the range of $1,046 million to $1,068 million (previously in the range of $1,036 million to $1,064 million) compared with $900 million in fiscal 2013;
Net income is anticipated to be in the range of $380 million to $394 million (previously in the range of $375 million to $393 million) compared with $303 million in fiscal 2013;
Earnings per share are expected to be in the range of $6.33 to $6.57 per share (previously in the range of $6.24 to $6.54 per share) compared with $2.39 per share in fiscal 2013; and
Adjusted earnings per share are expected to be in the range of $7.46 to $7.70 per share (previously in the range of $7.35 to $7.65 per share) compared with $6.90 per share in fiscal 2013.