TransDigm Group (NYSE: TDG) reported Q2 EPS of $4.21, $0.33 better than the analyst estimate of $3.88. Revenue for the quarter came in at $1.2 billion versus the consensus estimate of $1.13 billion.

• Net sales of $1,195.9 million, up 28.2% from $933.1 million;
• Net income from continuing operations of $202.4 million, up 0.3% from $201.8 million;
• Earnings per share from continuing operations of $3.60, down 0.8% from $3.63;
• EBITDA As Defined of $571.8 million, up 23.5% from $463.1 million;
• Adjusted earnings per share of $4.21, up 11.1% from $3.79; and
• Upward revision to fiscal 2019 sales, EBITDA As Defined and adjusted earnings per share guidance.

"We are pleased with our second quarter results and the strength of our base business," stated Kevin Stein, TransDigm Group's President and Chief Executive Officer. "Organic revenue growth was 11% in the quarter driven by good growth across all major end markets. Our core EBITDA As Defined, excluding the dilutive impact of Esterline and the acquisitions completed in fiscal 2018, continued to expand sequentially and over the prior year period to 51.5% in the quarter.

In addition to the focus on our base business, it was a busy quarter with the completion of the Esterline acquisition, our largest acquisition to date. Our second quarter results include $122 million of revenue and $27 million of EBITDA As Defined reflecting 17 days of Esterline ownership. Please note the implied Esterline margin from this short period is higher than should be expected for the balance of the fiscal year primarily due to an elevated level of shipments at quarter end."

He continued, "Lastly, our decision in the quarter to borrow substantial additional funds impacted our quarterly net income, but we believe the significant near term flexibility and attractive cost will serve us well in the future."

GUIDANCE:

TransDigm Group sees FY2019 EPS of $16.47-$17.15, versus the consensus of $16.22. TransDigm Group sees FY2019 revenue of $5.395-5.485 billion, versus the consensus of $5.34 billion.

Mr. Stein stated, "We are increasing our full year guidance to include the strong year-to-date performance of our base business and 6.5 months of the lower margin Esterline acquisition, partially offset by the impact of the financing activities completed during the quarter." Assuming no additional acquisitions, and based on current market conditions, TransDigm now expects fiscal 2019 financial guidance to be as follows:

• Net sales are anticipated to be in the range of $5,395 million to $5,485 million compared with $3,811 million in fiscal 2018 (an increase of $1,250 million at the mid-point);
• Net income from continuing operations is anticipated to be in the range of $686 million to $724 million compared with $962 million in fiscal 2018 (a decrease of $169 million at the mid-point) (1) ;
• Earnings per share from continuing operations is expected to be in the range of $11.75 to $12.43 per share based upon weighted average shares outstanding of 56.3 compared with $16.28 per share in fiscal 2018 (a decrease of $3.01 at the mid-point) (1);
• EBITDA As Defined is anticipated to be in the range of $2,325 million to $2,365 million compared with $1,877 million in fiscal 2018 (an increase of $255 million at the mid-point); and
• Adjusted earnings per share is expected to be in the range of $16.47 to $17.15 per share compared with $17.83 per share in fiscal 2018 (an increase of $0.05 at the mid-point).
• Other key financial expectations for fiscal 2019 guidance:
  • Net interest expense of $880 million; and
  • GAAP and cash effective tax rate of 24% to 25%; adjusted tax rate of 26%.

(1) Fiscal 2018 net income includes a one-time provisional benefit of $146.4 million, or $2.63 per share due to the enactment of tax reform. Excluding the one-time provisional tax benefit, fiscal 2018 earnings per share from continuing operations would be $13.65 per share.

For earnings history and earnings-related data on TransDigm Group (TDG) click here.