TransDigm Group Incorporated (TDG) on Q2 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by, and welcome to the Second Quarter 2001 TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jaimie Stemen, Director of Investor Relations. Please go ahead. Jaimie Stemen: Thank you, and welcome to TransDigm's Fiscal 2021 second quarter earnings conference call. Presenting on the call this morning are TransDigm's Executive Chairman, Nick Howley; President and Chief Executive Officer, Kevin Stein; and Chief Financial Officer, Mike Lisman. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the Company would like to remind you that statements made during this call, which are not historical in fact are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the Company's latest filings with the SEC available through the Investors section of our website or at sec.gov. The Company would also like to advise you that during the course of the call, we will be referring to EBITDA specifically, EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliation. I will now turn the call over to Nick. Nick Howley: Good morning. Thanks, everybody, for calling in. As usual, I'll start off with a quick overview of our strategy, a few comments about the quarter, and then Kevin and Mike will expand and give more color. To reiterate, we're unique in the industry in both the consistency of our strategy in good and bad times as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons why we believe this. About 90% of our sales are generated by proprietary products and over 3/4 of our net sales come from products for which we believe we are the sole source provider. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period of time have typically provided relative stability in the downturns. We follow a consistent long-term strategy. Specifically, we own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a second -- a simple, well-proven, value-based operating methodology. Third, we have a decentralized organization structure and a unique compensation system closely aligned with our shareholders. Fourth, we acquire businesses that fit this strategy and where we see a clear path to PE-like returns. And lastly, our capital structure and allocation of our capital are key parts of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. Kevin Stein: Thanks Nick. Today, I will first provide my regular review of results by key market and profitability of the business for the quarter. I'll also comment on recent acquisition activity and fiscal 2021 outlook. During our Q2 fiscal 2021 quarter, there continued to be a significant unfavorable impact on our business as a result of the reduced demand for travel due to the pandemic. Mike Lisman: Good morning, everyone. I'm going to quickly hit on a few additional financial matters for the quarter and then also the full fiscal year. For the quarter, organic growth was negative 20%, driven by the declines in our commercial end markets and despite some healthy defense growth in the quarter. I won't rehash the results for revenue, EBITDA and EPS, as you can see all of that info in the press release. On taxes, our expectation for the full year is unchanged. That is, we still anticipate our GAAP cash and adjusted rates to be in the 18% to 22% range. Regarding tax rates out beyond FY '21, we're monitoring potential changes in the U.S. tax code under the new administration, and we'll provide some guidance on our future rate expectations once any legislation is finalized. On interest expense, we now expect the full year charge to be $1.06 billion, reduced from prior guidance primarily for the refinancing activity completed this year. You can find this revised interest expense guidance and then a few other updated financial assumptions on Slide 6 of today's supplemental presentation. Moving over to cash and liquidity. We had another quarter of positive free cash flow. Free cash flow, which we traditionally define at TransDigm as our EBITDA is defined less cash interest payments, cash CapEx and cash taxes, was roughly $146 million. For the full fiscal year, we expect to continue running free cash flow positive as we define this metric. In line with our prior November guidance, we still expect this amount to be in the $800 million area, maybe a little better for our fiscal '21. We ended the second quarter with $4.1 billion of cash, down from $4.9 billion at last quarter's end. Note that last quarter's $4.9 billion balance was prior to the Cobham acquisition for an enterprise value of $965 million that closed on January 5. Pro forma for the closing of this acquisition, our Q2 net debt to LTM EBITDA ratio was 8.2x. With our last pre-COVID quarter now having rolled out of the LTM EBITDA computation, we believe that the net debt-to-EBITDA ratio as of our second quarter end is at or very close to its peak. In subsequent quarters, it should at worst remain relatively stable, but more likely start to show gradual improvement as our commercial end markets rebound. From an overall cash liquidity and balance sheet standpoint, we think we remain in good position and well prepared to withstand the currently depressed commercial environment for quite some time. Lastly, and shifting gears from financial matters, I'd like to provide a quick update on our ongoing U.S. DoD IG audit. We've been actively engaged with the IG office with some ebbs and flows and continue to work through the audit process. And our best assessment and based upon what we see, this ongoing audit appears to be similar in scope to our prior audits. While it's difficult to know exactly when a final report could be issued publicly, we expect that this might happen sometime during Q3 or Q4 of our fiscal '21. With that, I'll turn it back to the operator to kick off the Q&A. Operator: Our first question comes from the line of Myles Walton. Your question please. Myles Walton: Nick, you made a comment around likely not doing repurchase or dividends for the next several quarters. And I'm just curious why take it off the table, given you can't predict the outcome of the M&A environment and you generally thought about not retaining a cash drag for too long? Mike Lisman: Yes. I think, Myles... Kevin Stein: Mike, do you want to take it? Mike Lisman: Yes. Now as we've mentioned a couple of times in the past, until we see a couple more months and quarters of recovery here, I think the bias is just to be conservative with the cash and what we do with it and hold a larger balance for now until the situation in the commercial end markets improves. So it's not much more than that. Myles Walton: Okay. And then maybe a clarification. Is the OEM, do you think that has also troughed? I think, sequentially, it declined again. Is there -- as the booking strength looks like it probably is indicative of that troughing, but can you just confirm what the sequential decline was there? Kevin Stein: I think the bookings seems -- that seems to indicate that we've troughed, I would believe, but we'll see how it plays out. I don't anticipate any future revisions to production rate down. So I would assume that. Myles Walton: Was there a particular unit that you're seeing it in? Is it -- I imagine... Kevin Stein: No. Myles Walton: Wide-body focused and out of airframe? Kevin Stein: No. Myles Walton: No? Kevin Stein: No. Operator: Our next question comes from the line of Robert Spingarn. Your question please. Robert Spingarn: In terms of the booking strength, especially as it comes through sequentially here and focusing on the aftermarket, Nick or Kevin, do you have any sense when that will translate into some spike in sales? I know you've said you don't have enough year to guide. But between your conversations with your customers and the bookings, is there any sense of which quarter we're going to see an improvement in sales, that's notable aftermarket? Kevin Stein: Yes. I think that we've seen strong sequential improvement in aftermarket bookings. We've also seen some in OEM bookings. I think what we need to see is more flight activity that will give us a breakout quarter. I think we're just starting to see ourselves come out of this. I'll remind you that our thoughts when we went into this year were somewhat flat Q1 and Q2 with a slight uptick in the second half, nothing dramatic. I still think we're on that pace. But for a real breakout, which I think is what you're driving at and when do these orders come through, it's going to take more flight activity, I think. We're just at the beginning of the takeoff, I think. And we need more positive signs of that that lends itself to Mike's answer for the last question as well. We just need to see more stability here, more consistent performance for us to feel comfortable with the future quarters. We know that we book up to two years out on OEM. And so it's harder to predict when OEM orders will come in. Aftermarket orders tend to be more book and ship, you would expect that there will be more good news on the closer horizon. But there's still a lot to be seen. Robert Spingarn: Okay. And then, Kevin, just as a follow-up, you have done very well managing the business through the downturn, but I wanted to see if you could talk a little bit about your playbook for managing through this upturn when it comes. And how you deal with input cost pressures and then potential, I suppose, labor shortfalls? Kevin Stein: Well, I think it's the same approach and attack plan as always. We are very disciplined in adding back costs. We will do so in a very disciplined manner. We will pass along, of course, increased costs in terms of inflationary pressures. We will practice the same playbook as always as we go through this. I think this will work very well for TransDigm. As we come out of this, we will see improved, I think, margin position as we come out of this, given the cost reductions that we've done as well as what has happened with some value pricing. Robert Spingarn: And is labor available if you need it? Kevin Stein: As what is going to return first in this market is aftermarket and that requires less labor. Its OEM builds that drive OEM demand that drives labor needs quite significantly. I'm not saying that we won't need to hire, but the aftermarket recovery is less labor-intensive. Operator: Our next question comes from the line of David Strauss. Your question please. David Strauss: The 12% sequential improvement in the aftermarket that you highlighted, can you maybe just directionally talk about it, Kevin, from the perspective of engine versus interiors versus passenger, what you're seeing? Kevin Stein: Yes. I would say, in general, our sales in the aftermarket, we've seen strengths in aftermarket freight. We've seen some general strength in business jet. Our transfer business is sort of on par and some of our interiors, which tend to be a little more discretionary lag. Does that answer your question? David Strauss: Yes. I guess, on the more discretionary side of things, the interior side, maybe some of the passenger stuff, are you starting to see any pickup there at all? Or is it mainly concentrated on the less discretionary engine side of things? Kevin Stein: I think it's more concentrated on the less discretionary, but we are seeing some uptick from some of our more discretionary businesses that have seen some need to refurbish planes around the world. I think we've seen some orders and interest from unknown corners of the world. So it's the discretionary side is doing okay, but it is weaker than the other piece. I think that makes sense given that as airlines are recovering, they're more worried about putting people in the seats than some of the look and feel just yet, but we're starting to see that ever so slightly changed. David Strauss: Okay. And then following up on Rob's question. So from a cost-reduction standpoint, I know you've highlighted the headcount reduction. But can you give us some, I guess, specific examples of what maybe you've done for more of the structural cost standpoint, any facilities that you've taken out during this or are things that for sure aren't going to come back when we get to the other side? Kevin Stein: Yes. We have fundamentally looked at some of our businesses, some of their locations. They have satellite facilities and offices that we have looked to close, consolidate underperforming business segments for them. We've taken this opportunity to streamline, combine effectively to lower cost. There's also been a number of, of course, cost productivity programs, automation that we've been able to implement. This has been an ongoing effort. We've continued to invest at the same or in an even accelerated rate in some of our facilities for automation and cost reductions during this time. So it continues to bear out for us. Operator: Our next question comes from the line of Carter Copeland. Your question please. Carter Copeland: Nick, I know you hate to guess, but I want to sort of put you on the spot and ask you. You've seen several cycles at this point and watch how M&A goes, and I know people don't want to sell assets at the bottom because the EBITDA is depressed. But now as we start thinking about recovery and when we get to a point where assets could trade on EBITDA numbers that feel a little bit firmer, would you guess that 2023 is one of those sort of recovered years where you begin to close the bid-ask spreads because people have a bit more conviction in the EBITDA? Or is that still too early? Just some historical perspective apply what do you think? Nick Howley: I would sure hope so, Carter. I would sure hope so. I'd be surprised -- I see a lot of it in '22, just on the same -- maybe you get lucky and something comes along. But I'd say again, probably if you don't have a reason to sell and you have a good commercial business, you're probably not. Now there could be things that are attractive enough and get close enough to the edge that we're willing to pay a little more to try and make them happen. But that's very -- I just can't predict that right now. Carter Copeland: Yes. Okay. And then one for Kevin, just on the business jet OE fronts, how much of a lead -- is it too early to have conversations with OEM customers about potential production rate increases there. Have you had any of those yet? Any color you can give us on that end market? Kevin Stein: Well, I think we're starting to hear from Airbus of rate readiness, notifications of ramp in narrow-body rates. It seems to make sense. It seems like there will be a hole in the market that they need to fill. We will be ready to fulfill that as it comes to pass. Makes sense that there will be some of that need, though. Carter Copeland: What about on the business jet side? Kevin Stein: Business jet has been really robust, both in aftermarket OEM activity in general. I'm encouraged there, although we'll have to see how it plays out, that is it just leisure and or is it business jet use, what happens here. But right now, it's been a brighter segment for us. Now it's only 10% to 15% of our business. So it's not a massive driver on just the business jet side, but it's still interesting. Operator: Our next question comes from the line of Ken Herbert. Your question please. Ken Herbert: Yes. Kevin, I first wanted to ask on your defense sales, I mean you called out OEM revenue growth better than aftermarket. Can you parse those out? And can you comment specifically on the defense aftermarket? And are you may be seeing any trends there that are at all worrisome? Kevin Stein: We're not. I think we're really bullish about the order book on the defense side. We always see lumpiness and I've talked about it in the past, APKWS, parachute orders on lumpiness on OEM, sometimes those orders ship. Sometimes the bookings are delayed. We've seen strength in aftermarket recent bookings in aftermarket, defense aftermarket have been strong. So I'm not feeling like there's any weakness, any program concerns. As you know, the defense budgets are coming through right now. And I think TransDigm is in a great position because we are on the capability extension, the technological advancement curve, we're not boots on the ground, so to speak. So it puts us in a good place for the market in the future. So both short term and long term, I'm reasonably optimistic about the defense budget and situation for us. Ken Herbert: Okay. Very helpful. And if I could, on the commercial aftermarket, you grew in your fiscal first quarter, 5% sequentially, now 12% this quarter. Was any part of that step-up attributable to or can you comment on maybe average order sizes you're seeing or maybe any urgency around the orders, expedited shipment costs or benefits or anything of that nature? Kevin Stein: We don't offer volume discounts. So we're not -- in our aftermarket, we don't give you a better price if you buy 100 pieces versus one, generally speaking. So there's not the market drive to get ahead of anything. What we're seeing is that this is not overly discretionary driven. It's a lot of consumable parts that they need. And there's some urgency coming out of it. We're starting to hear of some urgent need, urgent orders. I'll tell you that our POS with our distribution is running very similar to what we see so all indicators are that the business is generally starting to recover, like you said, 5% sequential in Q1, 12% now and an order book that continues to expand. Operator: Our next question comes from the line of Hunter Keay. Your question please. Hunter Keay: Do you have a preference of a greater mix of leased versus owned aircraft in the global fleet? Kevin Stein: I don't know that we do. Generally speaking, leased folks might -- historically have had more restrictions on PMA and other things. But generally speaking, to us, it doesn't matter. Hunter Keay: Okay. And then we know that you're pretty well protected on the demand side from inflation and pricing passing through costs, a pretty clear track record of that. But what about the supply side of the house? Can you remind us how you're structured there with your suppliers and how you might protect against raw material increases? Kevin Stein: Well, we won't be able to protect against raw material increases. We will have to pass them along through our indices and price increases that we have and the mechanisms. There is no way to protect yourself unless you're willing to buffer with huge amounts of inventory, which generally we don't like to do. We also don't see the need to go really long on some of these ingredients. We have a tendency to have a lot of specialty products that we source from our supply chains around our facilities. I don't see this as a huge issue of supply yet. It doesn't mean that it won't get to that point as people struggle with possibly re-laboring their facilities. But right now, we're not in any danger position on raw material supply or supplies in general. Operator: Our next question comes from the line of Sheila Kahyaoglu. Your question please. Sheila Kahyaoglu: Maybe on commercial OE, you guys were down 50% in the quarter. I think your peers are trending down 40%. Any sort of puts and takes on where you guys are in rates, on destocking? Or when do you expect that business to start flatlining or just return to positive territory? Kevin Stein: I assume we're making that -- we're crossing some threshold as we move through this now. Defense -- or I'm sorry, commercial OEM bookings can be lumpy. We haven't lost any positions. They're simply working through inventory and the mix that they have today. I'm confident this will shake out in the coming months and quarter. Sheila Kahyaoglu: Okay. And then maybe on EBITDA margins, you guys were at 43 two for the first half. Your full year guidance is about 44, implies the second half is 45%, but you also have 100 to 150 basis points of dilution from Cobham. So what are some of the underlying assumptions, if you could give us some color there? Kevin Stein: Yes. I guess the underlying assumption we have is that people will fly more in the second half. There'll be more commercial aftermarket activity and a continued improvement. Not dramatic. We have said from the beginning, we had a modest uptick in the second half that was, in our thinking, and I still think that's where we're at to get to the 44%, with, as you pointed out, about a percentage point of headwind is yes, that is going to be the feat that we have ourselves dialed in to achieve right now. I don't see -- there's always headwinds to that continued cost reductions that we continue to look at. But I think we feel okay about that right now as our forward forecast. Operator: Our next question comes from the line of Gautam Khanna. Your question please. Gautam Khanna: Yes. Why don't I get your perspective on how things moved on the aftermarket sequentially within the quarter? So to be up nearly 30% was the test rate like vary... Kevin Stein: We saw some real change in the last month -- last six weeks of the quarter. Clearly, the month of March was very different than January and February. And I think that's -- you can see that in-flight activity, in interest, in people traveling, to websites. I mean, there are so many trackers that all of you out there follow that I religiously read every day that show sometime in the March time frame, there was an uptick in activity and that translated to an uptick in activity for us as well. Gautam Khanna: And would you say that's continued in April, that level of... Kevin Stein: Well, I can't comment on April -- I can't comment on April, whether that's continued, but the -- I think the flight activity and interest, as we have seen continues. Gautam Khanna: And is there any way to gauge whether the uptick in aftermarket activity is as parked -- is it for parked aircraft coming back into the active fleet, and therefore, it's sort of an unnaturally high bump relative to what the underlying consumption might actually be? I'm just wondering if there's any way to parse all of the data you guys get to figure out if this a... Kevin Stein: Because if I was placing that, I would say that yes, some of it must be for returning aircraft although the parked fleet has slowed as to what's coming back out-of-park until there's more revenue passenger miles flown. So I think they continue to pull out capacity. They then have to get it ready to fly. So there's a little bit of that. I don't say that there's a whole lot of it is getting planes ready. I think it's actual usage, having inventory staged where you'll need it. It's just the return of flight activity, and maybe there was some harvesting of available hours on different planes or ship sets that they needed to manage now. Now I'm kind of you get into speculation. Gautam Khanna: Right. Last one for me. You mentioned the dividends and buyback hiatus. But on the M&A front, what is the pipeline like these days? Are there any actionable things? Is it a low? Kevin Stein: Yes. I'd say it's actionable, the small, the medium-size end of the range. It continues to weight -- the opportunities we see continue to weigh more towards defense. To Nick's comments earlier, we'll see what comes. If there's a big good commercial business that comes down the pike, we'd like to see that. But currently, active as we always are and waiting more towards defense. Operator: Our next question comes from the line of Robert Stallard. Your question please. Robert Stallard: Nick or Kevin, first one for you on the OEM bookings. I was wondering if you could give us any additional detail on what's in there? Is this coming from narrow-body? Is it coming from restock? Are we may be seeing some offset from wide-bodies? Just some color, if you could. Kevin Stein: Yes, there's not a lot of color I can offer on that, except that we're delivering on the order book of today, which is, as you know, is more slanted to narrow-bodies right now. Yes, I don't have a lot of insight there as to whether one ship set is in a better inventory position or anything like that. I just don't have that color. Robert Stallard: And if Airbus were to firm up this speculated rate of 53, when do you think you would get the sort of lead notice on that? Kevin Stein: Probably later in the fall, if they were going to go for a 2022 rate change, it's usually six months or so ahead of time, I think. Robert Stallard: Okay. And then just finally, to follow-up on Gautam's question. If things were to improve in aerospace land in, say, the next 12 months or so, would you be willing to look at a scale acquisition like Esterline, if someone were to be there? Kevin Stein: So I think about it -- yes, it's awful hard to predict. Nick Howley: Yes. Kevin Stein: I mean, we consider looking at it. Of course. I mean, we have the capital to deploy, and we'd like to be out there putting it to putting it to work, but we can't make those things happen. So we remain at the ready to take advantage of it if the opportunity happens. Operator: Our next question comes from the line of Kristine Liwag. Your question please. Kristine Liwag: Mike, earlier, you mentioned that the IG audit is similar to previous audits. I want to clarify, is that on the audit process? Or does that also include the size and scope of what they're looking at? Mike Lisman: Both, the process and then also the scope in terms of auditing and reviewing profitability on a set number of contracts. That's what we saw in the 2006 audit. It's also what we saw on the audit that generated the 2019 report, and it's what we're seeing now as well. Kristine Liwag: Great. And a follow-up to that would be, how do you guys think about the underlying businesses that are driving these audits? At some point, I mean, it could be pretty distracting or with the time that you spent in 2019, do you view these businesses as core? Or would you consider exiting them just to keep the distraction at a minimum from the rest of the business? Kevin Stein: I say, I'll take this one. And Nick, you can jump in. I think these are still great businesses, core businesses. This is part of the process of doing work with the government. You have to go through this process. The U.S. is a military DoD fantastic customer. We understand that they are trying to get the best deal for their constituents as well. So it's a natural part of the process. I don't think we are afraid of it. We've spent more time integrating into it. We now have regular reviews and meetings with the DoD, the DLA. We're very connected, and it's very different today than 5, 10 years ago in terms of our connection. So if your question is, will we eventually want to get rid of these businesses because of the nuisance of military, I don't see that happening yet at all. These are still great businesses, core to us. These are products developed in a commercial environment. These are fantastic products and businesses for us. Nick Howley: I mean, all I'd add is there, to your point on the commercial environment, they're very frequently intertwined and very similar products. It's not that they're severable from and they're very close to the same product in many situations, if not the exact same product. Kevin Stein: And we have very few businesses that are just 100% military. And we've been talking about some of those and offloading some of those from the Esterline side of the house. So we continue to look at this and work on it. Operator: Our next question comes from the line of Seth Seifman. Your question please. Seth Seifman: I think you mentioned some more M&A opportunity on the defense side, which makes sense given the environment. Do you have any hesitancy about that just given where the mix is for the Company right now? Is there a certain point beyond which you would not want to see the revenue mix toward defense? Mike Lisman: Historically, we've always had, as Kevin mentioned in his comments, the defense mix in a non-COVID environment, that's 35% of revenue or slightly less. I think we see ourselves kind of staying in that ballpark. With some of the divestitures that happened out of the Esterline portfolio as well as some of the ones that could be coming in near-term months. We actually weight down on the defense side a little bit when you run rate for an environment that's not impacted by COVID. So we're looking at defense opportunities. And when we look on the M&A side for companies, we look for products that hit our criteria, not so much narrowing in on a specific end market and just looking at commercial and not focusing on defense. We look at the defense stuff that's out there now and size up the products to see if it fits our criteria, and we're active, as we mentioned. So shouldn't keep us out of that market and looking at opportunities in the future. Seth Seifman: Okay. And then I think you mentioned, Kevin, on the last call that most of the cost-out actions you kind of completed for the year and there were still some COVID restructuring during the quarter, I think, fairly similar to the level in Q1. Were there new sort of cost-out opportunities that came up during the quarter? And I guess, how do you see that kind of playing out? Kevin Stein: I guess -- two, there's some new things and then that's continuation and paying for the actions that we already started. Mike Lisman: The majority of the COVID actions have now been completed on Q1 and Q2. You'll see a little bit in Q3 and Q4, but at a far diminished rate versus what you've seen these past two quarters. Seth Seifman: Right. Okay. Kevin Stein: And we're never done looking at our cost position, right? So you shouldn't ever anticipate things completely cease there. Seth Seifman: Yes. Yes. That makes sense. And then just to put a fine point on Khristine's last question with the DoD audit. The extent that you see the scope and kind of the scale of the audit being similar to prior ones, is that mean you expect a similar result as well? Mike Lisman: It's hard to say or forecast any kind of result. We don't have good insight into that. To us, it seems just based on the activities we're doing and the dialogue and discussions we're having, it seems a lot like those prior audits. But to make a claim on what the outcome might be, that's not under our control. So I don't want to speculate. Kevin Stein: But we take this seriously. We're very engaged. We're working closely with the IG on the audit. We meet with them regularly. This has -- yes, it's been something that we've continued to work much like in the past. So the conclusions are similar. Operator: Our next question comes from the line of Peter Arment. Your question please. Peter Arment: Kevin, it's been coming up on a lot of calls about supply chain shortages. And maybe you could just give us a little color on what you're seeing on your end on the supply chain side. Kevin Stein: We are hearing of some critical raw materials, some critical materials, some materials that have gone up dramatically in price. So far, we haven't seen any dramatic supply disruptions because of the supply chain being stressed. We have seen prices go up in some spot market buys on certain metals and other components. But as a whole, we're able to pass along inflationary costs, surge pricing expedite pricing. The one area that we're looking very closely at, of course, is electronic components. We do consume those in a number of our businesses, whether they're chips, resistors, fets and the like and making sure that we have the supply of those that we need. That continues to be a focus. Again, we make a lot of what we need and consume so we are not overly exposed, but it's something that we have to continue to watch closely. Operator: Our next question comes from the line of Michael Ciarmoli. Your question please. Michael Ciarmoli: Maybe Nick or Kevin, just to go back to the aftermarket bookings. Can you provide a little bit more color from what you're seeing in terms of geography? I'm assuming the platforms are narrow-body driven. But even what are you seeing from distributors, are they starting to pull more? Was there anything for provisioning for the MAX in the quarter? And pricing, if we look sequentially from last quarter, are you getting any pricing in there in those bookings numbers? Kevin Stein: So we are always on regular intervals looking at pricing our business and putting -- passing along inflationary and expedited increases. As far as the CAM bookings or any color on geography, we don't track our business that way per se, many of our customers are global. So I don't have geographic information. My expectations are that certainly what I'm seeing -- what we're seeing in the U.S. is driving business, but also China, the domestic flight surge there. We anticipate that we see that activity, but we're -- we don't see any concrete geographies in our results. Michael Ciarmoli: Got it. And then just on -- from an organic aftermarket revenue standpoint, do we need to see traffic to get back to pre-pandemic levels for you guys to get back to that pre-pandemic quarterly revenue run rate? Mike Lisman: I think we track and kind of follow the takeoffs and landing. So I think in time, as the takeoffs and landings jump back up to where they used to be, we expect our aftermarket to do the same. Kevin Stein: Yes. I think because the price that we've been able to drive, I think the new products, programs and the like, I think we'll be in a better position when the volume returns, but we'll have to see how that unpacks. Operator: Our next question comes from the line of Robert Epstein. Your question please. Ronald Epstein: Parsing out one of the end markets, freight is doing quite well. You guys mentioned that, and we've seen that in the numbers. Are there any organic or inorganic opportunities that are more focused on freight that you guys are considering? Kevin Stein: Yes, we're always considering opportunities. We look at the passenger to freighter conversion business. We're looking at a number of opportunities there. I don't know on the inorganic side that I can comment there. But on the organic side, we're constantly looking at new products, innovations to better service that market because it seems like one that is evolving very quickly, and there's a lot of players, a lot of interested parties. Ronald Epstein: Got it. Got it. And then kind of following back up on M&A. Would you guys be willing to do anything outside of A&D, if it fit the criteria that you guys like, sole source, proprietary IP that kind of thing, highly engineered? Would you be willing to look at something in an adjacency? Or does it have to be in A&D? Nick Howley: Yes, I can try this. I would say, you never say, never, but we would be -- it would be a significant hurdle for us to get over. I mean we have a very strong preference to stick to our knit. Kevin Stein: There's still a lot of offer in the aerospace. Nick Howley: Yes. Yes. I think it's the best way I'd answer it. It would be a very high hurdle, but you never say, never. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jaimie Stemen for any further remarks. Jaimie Stemen: Thank you all for joining us today. This concludes today's call. We appreciate your time, and thanks again for joining. Have a good day. Kevin Stein: Thanks. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.TDG Ratings Summary
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Barclays Upgrades TransDigm Group to Overweight with a New Price Target
- Barclays upgraded TransDigm Group Incorporated to Overweight from Hold and increased the price target to $1,500 from $1,250.
- The Aerospace sector, where TransDigm operates, is ranked #2 in the Zacks Sector Rank, indicating strong performance potential.
- TransDigm's stock price reached a peak of $1,330.82, demonstrating significant growth from its 52-week low of $768.05.
On Monday, May 13, 2024, Barclays upgraded its rating on TransDigm Group Incorporated (NYSE:TDG) to Overweight from a previous hold position, setting a new price target of $1,500, up from $1,250. This significant adjustment reflects Barclays' increased confidence in TransDigm's future performance, as reported by TheFly. The aerospace company's stock was trading at around $1,310.49 at the time of the announcement, indicating Barclays' bullish outlook on its growth potential.
TransDigm Group, a key player in the Aerospace sector, has been recognized for its strong performance among its peers. According to Zacks Equity Research, the Aerospace sector is ranked #2 in the Zacks Sector Rank, which evaluates the strength of different sector groups based on the average Zacks Rank of the stocks within them. The Zacks Rank is a model designed to identify stocks that are expected to outperform the market, focusing on earnings estimates and revisions. Although specific performance metrics were not detailed, TransDigm's inclusion in this highly ranked sector suggests it is a significant contender, likely contributing to Barclays' optimistic rating.
The Aerospace sector's high ranking and TransDigm's position within it highlight the company's potential for growth and its attractiveness to investors. This context provides a backdrop for Barclays' decision to upgrade TDG's rating and increase its price target. The company's stock price movement, with a recent slight decrease to $1,310.49, does not detract from its year-to-date achievements, including reaching a peak price of $1,330.82. This peak represents a significant increase from its 52-week low of $768.05, underscoring the stock's volatility and growth potential.
TransDigm's market capitalization of approximately $73.33 billion, combined with a trading volume of 212,403 shares, further illustrates its substantial presence in the market. This financial stature, coupled with its performance within a highly ranked sector, supports Barclays' positive outlook. The upgrade to an Overweight rating and the raised price target to $1,500 by Barclays reflect an anticipation of continued growth and success for TransDigm in the Aerospace industry, making it a stock to watch for investors interested in this sector.
