Aerospace and defense company TransDigm (NYSE:TDG) reported Q2 CY2024 results topping analysts' expectations, with revenue up 17.3% year on year to $2.05 billion. The company expects the full year's revenue to be around $7.9 billion, in line with analysts' estimates. It made a non-GAAP profit of $9 per share, improving from its profit of $7.25 per share in the same quarter last year.
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TransDigm (TDG) Q2 CY2024 Highlights:
- Revenue: $2.05 billion vs analyst estimates of $2.01 billion (1.9% beat)
- EPS (non-GAAP): $9 vs analyst estimates of $8.51 (5.8% beat)
- The company lifted its revenue guidance for the full year from $7.74 billion to $7.9 billion at the midpoint, a 2.1% increase
- EPS (non-GAAP) guidance for the full year is $33.02 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $4.13 billion at the midpoint, in line with analyst expectations
- Gross Margin (GAAP): 59.6%, up from 59% in the same quarter last year
- Adjusted EBITDA Margin: 53.3%, in line with the same quarter last year
- Market Capitalization: $67.68 billion
"I am incredibly pleased with the operating results for the third quarter and our continued strong performance," stated Kevin Stein, TransDigm Group's President and Chief Executive Officer.
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE:TDG) develops and manufactures components and systems for military and commercial aviation.
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Thankfully, TransDigm's 10% annualized revenue growth over the last five years was solid. This is encouraging because it shows TransDigm was more successful in expanding than most industrials companies. 
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 21% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, TransDigm reported robust year-on-year revenue growth of 17.3%, and its $2.05 billion of revenue exceeded Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 12.9% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
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 40.3%.
Analyzing the trend in its profitability, TransDigm's annual operating margin rose by 7.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.
In Q2, TransDigm generated an operating profit margin of 45.7%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
TransDigm's EPS grew at an astounding 19.3% compounded annual growth rate over the last five years, higher than its 10% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into TransDigm's earnings to better understand the drivers of its performance. As we mentioned earlier, TransDigm's operating margin was flat this quarter but expanded by 7.8 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 also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For TransDigm, its two-year annual EPS growth of 42.1% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, TransDigm reported EPS at $9, up from $7.25 in the same quarter last year. This print beat analysts' estimates by 5.8%. Over the next 12 months, Wall Street expects TransDigm to grow its earnings. Analysts are projecting its EPS of $32.18 in the last year to climb by 17.9% to $37.95.
Key Takeaways from TransDigm's Q2 Results
We enjoyed seeing TransDigm exceed analysts' revenue and EPS expectations this quarter. We were also glad it raised its full-year revenue guidance. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 3.3% to $1,249 immediately after reporting.
TransDigm may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.