Triumph Group Inc. (TGI) reported encouraging results for the second quarter of fiscal 2011 with an EPS of $1.70 (excluding integration cost of the Vought acquisition), up from $1.25 in the year-ago quarter. Reported EPS surpassed the Zacks Consensus Estimate of $1.48. Net earnings were more than double the second quarter earnings in fiscal 2010. Net earnings reached $42.6 million from $20.7 million in the year-ago quarter.
Total sales grew to $769.1 million from $313.1 million in the same period of fiscal 2010. This huge jump was fueled by the Vought acquisition. However, organic growth was only 7%. However, sales during the quarter were also lower than the Zacks Consensus Estimate of $790.0 million.
Sales from Aerospace System grew 4.7% year over year to $123.5 million, while Aftermarket Services stretched 19.9% to $68.7 million.
During the previous quarter, Triumph completed the acquisition of Vought Aircraft Industries Inc. from a private equity firm, The Carlyle Group, for $1.44 billion. Triumph paid $525 million in cash and 7.5 million shares (a 31% stake) to Carlyle. Triumph issued senior notes to fund the acquisition. The acquired business started operating as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division. Thus, the revenue in the Aerostructures segment sprinted to $578.6 million from $139.6 million.
Operating income grew to $87.4 million from $37.1 million during the same period of fiscal 2010. Operating margin dropped 40 basis points to 11.4% from 11.8% in the second quarter of previous year. EBITDA margin also dropped 280 basis points to 13.6% based on an increase in sales at a higher rate than EBITDA. EBITDA increased to $104.5 million from $51.4 million in the year-ago quarter.
At the end of the reported quarter, net debt was $1,238.2 million, marginally down from $1,299.6 million at the end of the previous quarter. Net debt accounted for 46.6% of total capital in the quarter compared with 48.6% in the previous quarter.
Triumph has witnessed its sales increase by more than $300 million in the last three years through various acquisitions. We expect mergers and acquisitions to continue to enable the company to achieve its $1.5 billion annual sales goal.
At the end of the quarter, Triumph recorded a strong backlog with $4.04 billion, versus $3.35 billion at the end of the previous quarter, due to the inclusion from Vought. Total capital expenditure during the quarter was $24.3 million, management expects capex to range between $80 million and $90 million in fiscal 2011.
Outlook
Triumph benefits from acquisitions and internal manufacturing, and the recent Vought acquisition has been highly accretive to earnings. Hence, management raised its fiscal 2011 EPS estimate to $6.6 (excluding integration costs). Management expects the new business to be immediately accretive to earnings and add approximately $25 million of revenues in fiscal 2011. Owing to the acquisition, during 2011, EPS will grow approximately $1.10 per share and total synergies are expected to approximate $15 million within a year.
Moreover, Triumph’s focus on growing its core businesses along with its strict cost control strategy will help it to profit in the long run. Thus, we recommend an Outperform rating on the shares. The stock currently retains a Zacks #2 Rank (short term “Buy” rating).
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