May 6, 2008 / 3:28 PM / 11 years ago

UPDATE 3-TransDigm Q2 results beat Wall Street view, shares up

(Adds conference call details, analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, May 6 (Reuters) - Aircraft component designer TransDigm Group Inc (TDG.N)posted better-than-expected quarterly results, helped by sales of its proprietary products as well as recent acquisitions, and raised its 2008 outlook, sending its shares up as much as 11 percent.

“About 90 percent of the company’s products are truly proprietary,” Lehman Brothers analyst Carter Copeland said.

Its product line includes overhead bin latches, ignition systems, power conditioning devices and lavatory faucets.

TransDigm, which reported an organic sales growth of 10 percent in the second quarter, is also a supplier of audio systems for Boeing’s (BA.N) 787 Dreamliner aircraft. The 787 program is now running about 15 months late after three delays.

“We do not believe the reschedule (of the 787 program) will have a material impact on our 2008 financial performance but, in any event, it is captured in our new guidance,” CEO Nicholas Howley said in a conference call.

However, Lehman’s Copeland said, “What makes a little bit of an impact is if the research and development effort drags on.”

R&D costs are expected to remain flat in the third quarter and then taper off in the fourth quarter, assuming Boeing does not stretch the schedule any more, the company said in the call.

Copeland, who has an “overweight” rating on the stock, said the current 787 delay would not significantly impact TransDigm’s revenue and profit as margins on OEM sales are low.

TransDigm gets 60 percent of its revenue and 90 percent of its profit from aftermarket sales, which are far more lucrative than OEM sales, Copeland added.

Boeing, Airbus EAD.PA and the U.S. Department of Defense are some of TransDigm’s key customers.

Shares of the Cleveland, Ohio-based company were up $2.14 at $41.50 in afternoon trade on the New York Stock Exchange. They touched a high of $43.68 earlier in the session.


For the second quarter ended March 29, TransDigm’s net income rose to $32.2 million, or 64 cents a share, compared with $21.5 million, or 45 cents a share, in the year-ago period.

On an adjusted basis, it earned 68 cents a share, beating analysts’ estimate of 60 cents a share, before special items.

Reduction in acquisition-related expenses incurred during fiscal 2008 also boosted net income, TransDigm said.

Revenue rose 21.4 percent to $175.3 million, helped by the acquisitions of Aviation Technologies Inc and Bruce Aerospace Inc. Analysts expected revenue of $168.6 million, according to Reuters Estimates.

For the full year, the company expects to earn $2.56 to $2.62 a share, up from its prior view of $2.27 to $2.37 a share.

On an adjusted basis, it forecast earnings of $2.69 to $2.75 a share. It previously expected $2.43 to $2.53 a share.

TransDigm sees revenue of $700 million to $710 million, up from its earlier outlook of $680 million to $700 million.

Analysts were expecting earnings of $2.51 a share, before special items, on revenue of $699.6 million.

Copeland, who said the company is known to give conservative guidance, believes the outlook is “completely achievable.”

CJS Securities analyst Fred Buonocore said TransDigm had, in a way, benefitted from the current credit market crisis, adding that the company had raised its outlook partly on lower interest expense.

“As rates have come down on its existing debt, the reduced interest expense has been generating additional earnings for the company,” said Buonocore, who has a “market outperform” rating on the stock. (Editing by Himani Sarkar)

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