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TransDigm Group INC (TDG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered strong top-line and margin performance: revenue $2.006B (+12.1% YoY), EBITDA As Defined $1.061B, and EBITDA margin 52.9%, driven by a favorable mix shift toward commercial aftermarket and disciplined productivity execution .
  • Commercial aftermarket grew ~9% YoY and ~4% sequentially; defense rose ~11% YoY, while commercial OEM declined ~4% YoY amid Boeing strike-related disruptions and fragile supply-chain ramp dynamics .
  • Full-year FY25 guidance for Sales ($8.75–$8.95B) and EBITDA As Defined ($4.615–$4.755B) was maintained; GAAP EPS and Adjusted EPS ranges were modestly raised on a lower share count following ~$316M buybacks (252,800 shares at ~$1,248.65) .
  • Potential stock reaction catalysts: stronger-than-expected margin in Q1 (52.9%), aftermarket resilience, distribution POS leading indicators, and buyback-supported EPS—all against conservative margin commentary and ongoing OEM uncertainty .

What Went Well and What Went Wrong

What Went Well

  • Commercial aftermarket strength and mix: Aftermarket revenue +9% YoY; management attributed the margin beat primarily to mix shift from OEM to aftermarket (“mix is the primary piece”) .
  • Margin execution and cash generation: EBITDA As Defined margin 52.9% and operating cash flow >$750M in Q1 (free cash flow >$800M on timing), reflecting value-based operating methodology and productivity projects .
  • Positive demand indicators: Distribution partners’ Q1 point-of-sale data increased well into double digits YoY, giving confidence in aftermarket trajectory (“should be a good leading indicator”) .

What Went Wrong

  • OEM headwinds: Commercial OEM revenue -4% YoY and -17% sequentially due to the Boeing machinists strike and uneven supply-chain recovery; management maintained conservative OEM assumptions for FY25 .
  • Freight and interiors: Freight remained weaker than total aftermarket growth and interiors are still below 2019 levels, reflecting slower refurb cycles and the difficulty of taking aircraft out of service amid thin OEM deliveries .
  • Acquisition dilution on margins: Management reiterated acquisitions are averaging margins down ~70–100 bps, tempering full-year margin expansion despite Q1 upside .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$1.789 $2.185 $2.006
EBITDA As Defined ($USD Billions)$0.912 $1.149 $1.061
EBITDA As Defined Margin (%)51.0% 52.6% 52.9%
GAAP EPS ($)$4.87 $5.80 $7.62
Adjusted EPS ($)$7.16 $9.83 $7.83
Actual vs S&P Global Consensus (Q1 2025)Actual Q1 2025S&P Global Consensus
Revenue ($USD Billions)$2.006 N/A (unavailable)
GAAP EPS ($)$7.62 N/A (unavailable)
EBITDA As Defined ($USD Billions)$1.061 N/A (unavailable)

Note: S&P Global Wall Street consensus data was unavailable at time of request due to SPGI rate limits. We will update comparisons when accessible.

Market Channels – Q1 2025

Market ChannelYoY ChangeSequential Change
Commercial OEM (Total)-4% -17%
• Transport OEM (Boeing/Airbus)-1% N/A
• Bizjet & Helicopter OEM-8% N/A
Commercial Aftermarket (Total)+9% +4%
Defense (Total)+11% N/A

KPIs and Balance Sheet

KPIQ1 2024Q4 2024Q1 2025
Operating Cash Flow ($USD Millions)$636 N/A$752
Free Cash Flow ($USD Millions)N/AN/A>$800 (timing)
Cash & Cash Equivalents ($USD Millions)N/A$6,261 $2,459
Share Repurchases ($USD Millions)N/AN/A~$316 (252,800 shares @ $1,248.65)
Net Debt / EBITDA (x)N/AN/A5.3x
EBITDA / Interest Coverage (x)N/AN/A3.4x
Gross Debt HedgingN/A~75% of $25B through FY2027 ~75% of $25B through FY2027

Guidance Changes

MetricPeriodPrevious Guidance (Nov 7, 2024)Current Guidance (Feb 4, 2025)Change
Net Sales ($USD Billions)FY 2025$8.75–$8.95 $8.75–$8.95 Maintained
EBITDA As Defined ($USD Billions)FY 2025$4.615–$4.755 $4.615–$4.755 Maintained
GAAP Net Income ($USD Billions)FY 2025$1.887–$1.999 $1.925–$2.037 Raised
GAAP EPS ($)FY 2025$31.47–$33.39 (58.4M shares) $32.27–$34.19 (58.15M shares) Raised
Adjusted EPS ($)FY 2025$35.36–$37.28 $35.51–$37.43 Raised (midpoint $36.47)
Weighted Avg Shares (M)FY 202558.4 58.15 Lower (buybacks)
Market Channel Growth AssumptionsFY 2025OEM mid-single-digit; Aftermarket high single-digit to low double-digit; Defense high single-digit Same as prior Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Commercial AftermarketPassenger strong (~16% YoY); POS +25%; Freight down; bizjet mixed Aftermarket +8% YoY; POS near +20%; Q1 expected lowest Aftermarket +9% YoY; distribution POS double-digit; engines outperform Improving/Stable
Commercial OEMRamp risks; MAX avg build-rate ~25/month Strike impact to ramp; cautious FY25 OEM growth OEM -4% YoY; -17% seq; Boeing strike and uneven supply chain Headwind
Defense+13% YoY (Q3); strong bookings +16% YoY (Q4); bookings strong +11% YoY; guidance high single-digit maintained Stable to improving
Distribution POS+25% (Q3) ~20% (Q4) Double-digit; leading indicator Positive
Interiors refurbTiming to the right; limited visibility (Q3) Expected acceleration in 2025, but uncertain Below 2019; tied to OEM deliveries and ability to take planes out Lagging
FreightDown YoY (Q3), sequential +7% Weaker vs aftermarket Weaker; bookings improved; near bottom Stabilizing
PricingSlightly ahead of inflation N/APricing approach unchanged; no incremental pressure Stable
Tariffs/MacroN/AN/ATariff exposure de minimis; domestic manufacturing footprint; limited China reliance Minimal impact
OEM ContractNegotiations ongoing (expiring EOY) N/AClosed in December; new terms effective Jan 1; no retroactive price impact Resolved
M&A PipelineBusy; added SEI/CPI/Raptor (Q3) Record year of capital deployment Pipeline active; mix of small/mid, occasional large; buybacks opportunistic Active

Management Commentary

  • “Our EBITDA, as defined margin, was 52.9% in the quarter… continued strength in our commercial aftermarket along with diligent focus on our operating strategy” — Kevin Stein .
  • “We are maintaining our previously issued fiscal 2025 sales and EBITDA As Defined guidance” — Kevin Stein .
  • “In Q1, the higher EBITDA margin is primarily driven from the significant mix shift… from commercial OEM to commercial aftermarket” — Sarah Wynne .
  • “Quarter 1 point of sales data from our distribution partners increased well into double digits… These factors give us confidence we will achieve the commercial aftermarket growth rate guidance” — Joel Reiss .
  • “Tariffs… will be de minimis to the corporation. Again, we’re largely a domestic manufacturer” — Kevin Stein .

Q&A Highlights

  • Margin upside drivers: Mix shift to aftermarket and productivity, with acquisitions diluting margins ~70–100 bps; management remains conservative on full-year margin trajectory .
  • OEM dynamics: Boeing strike effects led to OEM -17% sequential; contract with Boeing closed in December with new terms starting Jan 1, no retroactive benefit .
  • Aftermarket detail: Engines materially outperformed the +9% aftermarket; distribution POS running ahead of TransDigm aftermarket and seen as a leading indicator .
  • Tariffs and pricing: Tariff exposures minimal; pricing strategy unchanged—cover inflation plus modest margin—no incremental pressures cited .
  • Portfolio actions: Gain on sale from a small “Matt Systems” business; buybacks ($316M) opportunistically deployed amid market volatility .

Estimates Context

  • S&P Global Wall Street consensus (Revenue, EPS, EBITDA) for Q1 2025 was unavailable at time of request due to SPGI daily rate limits. As such, comparisons to consensus cannot be provided. We will update when data access is restored.

Key Takeaways for Investors

  • Mix-driven margin upside and resilient aftermarket demand are offsetting OEM headwinds; maintaining FY25 Sales/EBITDA guidance underscores confidence in end-market fundamentals .
  • Distribution POS strength and engine-heavy aftermarket outperformance suggest continued aftermarket momentum near term; watch freight and interiors for gradual normalization .
  • Conservative margin framing (acquisition dilution, OEM uncertainty) implies potential upside if OEM rates stabilize sooner and acquired units integrate faster; monitor subsequent quarters for margin cadence .
  • Capital deployment remains balanced: robust M&A pipeline plus opportunistic buybacks lowered share count and lifted EPS guidance—supportive for per-share value creation .
  • FY25 risk factors: Boeing ramp timing and supply-chain fragility could whipsaw OEM shipments; management initiated cost actions and will scale resources judiciously as visibility improves .
  • Balance sheet and liquidity are ample (cash ~$2.5B; hedged debt; coverage 3.4x), enabling flexibility for M&A and further returns of capital .
  • Tactical trading implications: near-term narrative favors aftermarket-led margin strength and buyback-supported EPS; headline risk persists around OEM ramp and interiors timing, but guidance maintenance reduces downside surprise risk .