July 29, 2015: Triumph Group reported lower FY1Q2016 earnings below analyst expectations, citing in part decreased production of the commercial Airbus A330 program as well as lower production of the Gulfstream G450/550 and Boeing C-17 and 747-8 airplanes. It’s previously taken large write-offs of the Boeing 747-8 program on its poor sales.
Triumph said in its press release:
The Aerostructures segment reported net sales of $611.8 million in the first quarter of fiscal year 2016 compared to $612.2 million in the prior fiscal year period. Organic sales for the quarter declined fourteen percent primarily due to decreased production on the C-17, 747-8, A330 and G450/G550 programs. Operating income for the first quarter of fiscal year 2016 was $66.0 million, compared to operating income of $68.8 million for the prior year period and included $1.9 million of pre-tax costs related to initial facility consolidation actions. The segment’s operating results for the quarter included a net favorable cumulative catch-up adjustment on long-term contracts of $1.3 million. The segment’s operating margin for the quarter was eleven percent. Excluding the 747-8 program, the segment’s operating margin for the quarter was thirteen percent.
Triumph’s Top 10 programs are mostly Airbus and Boeing commercial airplanes. Boeing makes up more than 10% of Triumph’s 1Q revenue. The earnings call presentation is here. Slide 15 outlines the Top 10 programs.
Goldman Sachs had this initial reaction:
Triumph Group (Neutral; $62 12-month price target) reported F1Q16 operating results below consensus and our estimate. Revenue declined 10% organically and segment EBIT was 12% below our estimate. The midpoint of FY2016 EPS guidance is 6% below consensus, and we believe the free cash flow outlook is likely below consensus expectations.
Reported EPS in the quarter is $1.27, below consensus of $1.34 and our estimate of $1.36. Adjusted EPS of $1.31 excludes an unfavorable $(0.04) impact from pension curtailment. Segment operating profit is 11.6% below our model, with the negative impact partially offset by a lower tax rate and a lower share count. Reported modified adjusted EBITDA is $119mn.
Revenue in the quarter of $959.6mn (up 7% yoy; down 10% organically) is below consensus of $963.2mn and our estimate of $999.1mn, primarily due to production rate reductions on key Aerostructures programs. Segment operating margin is 13.2%, 120 bp below our estimate, with downside in Aerostructures and Aftermarket services more than offsetting upside in Aerospace Systems.
Free cash flow is a use of $(167)mn compared to a use of $(75)mn in the year ago period.
The 747-8 program will cost Triumph about $20m in cash flow this year.
Triumph expects A330 revenue to increase as a result of the June 30 commitment by China for up to 70 A330ceos. This order has yet to be inked into a firm contract by Airbus. The company also will benefit from the recent FedEx order for 50 Boeing 767-300ERFs.