On February 4, Triumph Group, Inc. (TGI) reported results for the third quarter of fiscal 2010. Net income was $18.1 million or $1.08 per share, down from $20.1 million or $1.21 for the third quarter of the prior year.
The decrease in net income was the result of a huge increase in operating expense, which was partially offset by the increase in net revenues during the quarter. Reported EPS was also below the Zacks Consensus Estimate of $1.2.
Triumph has a mixed track record of earnings surprises in the preceding four quarters, with two positive and two negative. However, it produced an average positive earnings surprise of 0.53% over the last four quarters, meaning Triumph has beaten the Zacks Consensus Estimate by that measure over the trailing 12 months.
Triumph has decided to acquire Vought Aircraft Industries, Inc. from private equity firm The Carlyle Group for $1.44 billion, including the retirement of Vought debt. Triumph will pay $525 million in cash and offer 7.5 million shares to Carlyle, which is expected to have a 31% stake in Triumph. The deal is expected to close by July 2010.
Triumph’s management expects an increase in EPS by $1.00 for 2010. Thus, EPS is expected to be approximately $4.81.
Estimate Revision Trend
Although, the company witnessed a 10% increase in stock price, analysts covering the stock have not yet grasped the acquisition news. Thus, in the last 30 days one out of 10 analysts has downgraded his estimate for 2010. However, none upgraded it. For 2011, two out of 10 analysts raised their estimates with only one decreasing it.
Magnitude of Estimate Revision
Consequently, the Zacks Consensus Estimate did not change and remained at $4.79. However, the 2011 estimate moved up from $4.88, 30 days ago to $4.97 currently.
Triumph remains focused on growing its core businesses as well as growing through strategic acquisitions. Organic growth remained strong in fiscal 2009 through the addition of products and services, expansion of the operating capacity and marketing of the complete portfolio of capabilities.
This is also expected to continue in fiscal 2010. Thus, the short-term rating on the stock remains Neutral with Zacks #3 Rank.
Long-term Neutral Recommendation
Triumph has progressed strongly over the past decade as a result of overall growth in the aerospace equipment and repair market, augmented by a string of over 30 acquisitions. Triumph has set its sights on achieving $1 billion in annual sales and has been moving towards that goal through acquisitions.
The company has witnessed its sales increase by more than $200 million in the last three years through seven large acquisitions. We expect mergers and acquisitions to continue in order to facilitate the company reach its goal of $1 billion in annual sales.
Triumph has been benefiting from companies such as Boeing (BA) that are searching for alternatives to internal manufacturing and in-house maintenance. Triumph has been able to take advantage of these trends through increased market share by concentrating on services and production where it has a sustainable cost advantage.
This may also be one reason the company prospers in the long term. Thus, we maintain our Neutral recommendation on the stock.
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