TransDigm Group Earnings Call Insights: Organic Growth, Military Strength

On Tuesday, TransDigm Group Inc (NYSE:TDG) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Organic Growth

Julie – Credit Suisse: This is (Julie). Nice quarter and thanks for taking my question. So, with 15% organic growth in the first half of the year, what’s the total organic growth you’re assuming in the full year revenue guidance, and has that changed from what you were assuming in the prior guidance?

Gregory Rufus – EVP, CFO and Secretary: Just with the (sense), it’s up a little bit. It hasn’t changed dramatically.

W. Nicholas Howley – Chairman and CEO: Yeah, it’s probably up a little. I just – I don’t have the number in my head, Julie – this is Nick Howley. But the commercial OEM is up a little bit; defense is up a little bit, and commercial aftermarket is about the same. So, a little bit.

Julie – Credit Suisse: Okay, but it looks like it might decelerate a little bit in the back half of the year and maybe the high single-digits, low double-digits; does that sound about right?

W. Nicholas Howley – Chairman and CEO: No. I just don’t have the number on my head. Greg, you?

Gregory Rufus – EVP, CFO and Secretary: We have in the second half when you look at it on this basis excluding some of the acquisitions it’s being more in the high…

W. Nicholas Howley – Chairman and CEO: Yeah, yeah, yeah, you’re right, you’re right. You’re right, Julie.

Julie – Credit Suisse: Okay, and then just a housekeeping for Greg. What was the interest expense you’re embedding in your full year guidance number?

Gregory Rufus – EVP, CFO and Secretary: Well, the interest and depreciation and amortization combined Julie was $0.26 per share. I don’t have the absolute number in front of me right now.

Military Strength

Carter Copeland – Barclays: Just a couple of quick ones. Nick, I wondered if you might talk to what’s driving the military strength, if you can see anything in the kind of granular data of whether or not it’s helicopters…

W. Nicholas Howley – Chairman and CEO: Yes.

Carter Copeland – Barclays: Or what’s going on that it keeps surprising us?

W. Nicholas Howley – Chairman and CEO: Yes. First Carter, I don’t think we’re the only one that’s surprising. If you look across the product lines, it’s fairly broadly doing better. I would say in specifics the couple of things that do jump out is the helicopters continue to do better, helicopter maintenance, spare parts, upgrades all that sort of thing, and we saw a couple of decent F-35 shipments here too in this quarter. Those are probably the two things that might stick out other than just generally it’s not drop as much as we thought.

Carter Copeland – Barclays: And the second relates to just M&A, I know you said the pipeline was a little light. But I wondered if you might comment on the types of deals you’re seeing out there. If you are seeing any impact from sort of looming tax changes and whether or not that’s got sellers interested or not, what kind of deals are out there, is there anything new or you’re working the same list, any detail would be helpful?

W. Nicholas Howley – Chairman and CEO: Yes. I can’t talk anything specific, of course. Let me take your questions in the order you asked them, Carter. We do the tax change picture all the time, (indiscernible) to try and get them to sell. I honestly can say we haven’t got lot of (budging) on that. People listen but they don’t seem to move much on it. We had the same thing in 2010. So I can’t take much comfort in that. I would say on the deals we are seeing I would say the type of things we’re seeing right now are typically the smaller type of things that we traditionally saw. That being said, as you know, particular bigger things can just pop up on you quickly. We’re tracking them but we don’t know of anything right now that’s popping up.