Aerospace and defense company TransDigm (NYSE:TDG) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 12% year on year to $2.15 billion. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $8.85 billion at the midpoint. Its non-GAAP profit of $9.11 per share was 1.8% above analysts’ consensus estimates.
Revenue: $2.15 billion vs analyst estimates of $2.17 billion (12% year-on-year growth, 0.7% miss)
Adjusted EPS: $9.11 vs analyst estimates of $8.95 (1.8% beat)
Adjusted EBITDA: $1.16 billion vs analyst estimates of $1.15 billion (54% margin, 0.8% beat)
The company reconfirmed its revenue guidance for the full year of $8.85 billion at the midpoint
Management reiterated its full-year Adjusted EPS guidance of $36.47 at the midpoint
EBITDA guidance for the full year is $4.69 billion at the midpoint, in line with analyst expectations
Operating Margin: 46.1%, in line with the same quarter last year
Organic Revenue rose 6.9% year on year (16.1% in the same quarter last year)
Market Capitalization: $82.59 billion
"I am very pleased with the operating results for the second quarter. We continued to see strong performance as we closed out the first half of our fiscal year," 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.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, TransDigm’s sales grew at a mediocre 7% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about TransDigm.
TransDigm Quarterly Revenue
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 19.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
TransDigm Year-On-Year Revenue Growth
TransDigm also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, TransDigm’s organic revenue averaged 14.9% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.
TransDigm Organic Revenue Growth
This quarter, TransDigm’s revenue grew by 12% year on year to $2.15 billion but fell short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 10% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and indicates the market sees success for its products and services.
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 41.6%.
Analyzing the trend in its profitability, TransDigm’s operating margin rose by 16.7 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q1, TransDigm generated an operating profit margin of 46.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
TransDigm’s EPS grew at an astounding 18.2% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
TransDigm Trailing 12-Month EPS (Non-GAAP)
Diving into TransDigm’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, TransDigm’s operating margin was flat this quarter but expanded by 16.7 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 provide insight into an emerging theme or development for the business.
For TransDigm, its two-year annual EPS growth of 33% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q1, TransDigm reported EPS at $9.11, up from $7.99 in the same quarter last year. This print beat analysts’ estimates by 1.8%. Over the next 12 months, Wall Street expects TransDigm’s full-year EPS of $35.77 to grow 12.2%.
Key Takeaways from TransDigm’s Q1 Results
Revenue missed by a small amount, but TransDigm managed to narrowly top analysts’ EBITDA and adjusted EPS expectations this quarter due to better profitability. Looking ahead, the company reaffirmed previously-provided revenue and adjusted EPS guidance. Overall, this was a fine quarter but may not feature enough clear positives for the market. The stock remained flat at $1,465 immediately following the results.
The latest quarter from TransDigm’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
