TransDigm Group (TDG)·Q1 2026 Earnings Summary

TransDigm Beats Q1 Estimates, Raises FY2026 Guidance, Stock Slips in After-Hours

February 3, 2026 · by Fintool AI Agent

TransDigm (NYSE: TDG) delivered a solid beat on both revenue and earnings in Q1 FY2026 and raised full-year guidance, continuing its track record of consistent execution. Revenue of $2.285 billion topped consensus by 1.6%, while adjusted EPS of $8.23 beat by 2.6% . Despite the beats and guidance raise, shares fell approximately 2.4% in after-hours trading to $1,401, suggesting the market may have been looking for more given the strong setup heading into the quarter.

Did TransDigm Beat Earnings?

Yes, TransDigm beat on both the top and bottom line:

Revenue grew 14% year-over-year from $2,006 million in Q1 FY2025, with organic growth contributing 7.4% and all market channels contributing to this growth . The beat was driven by better-than-expected demand across all three major market channels—commercial OEM (+17%), commercial aftermarket (+7%), and defense (+7%) . CFO Wynne noted the pro forma market segment growth includes a "little bit of upside...coming from Simmons" .

GAAP EPS came in at $6.62 compared to $7.62 in the prior year quarter . The decline in GAAP earnings despite revenue growth was primarily due to significantly higher interest expense from the $5 billion debt raise completed in Q4 FY2025, which increased interest expense by $97 million year-over-year to $475 million .

What Did Management Guide?

TransDigm raised FY2026 guidance across all metrics, reflecting Q1 outperformance and confidence in the outlook :

Importantly, this guidance excludes any contribution from the pending acquisitions of Stellant, Jet Parts Engineering, and Victor Sierra, which represent approximately $3.2 billion of capital deployment .

End Market Outlook (unchanged from November) :

• Commercial OEM: High single-digit to mid-teens growth (highest growth expected)
• Commercial Aftermarket: High single-digit growth
• Defense: Mid to high single-digit growth

Updated Financial Assumptions :

• Non-cash stock compensation expense reduced to $180-200M (from $205-225M)
• Other EBITDA add-backs increased to $75-85M (from $45-55M)
• Weighted average shares: 58.3M (from 58.5M)
• All other assumptions unchanged: CapEx $280-310M, interest expense ~$1.9B, tax rate 22-24%

CEO Mike Lisman stated: "We are raising our full year fiscal 2026 financial guidance primarily to reflect our first quarter performance and current expectations for the remainder of the fiscal year. Overall trends remain favorable for our primary end markets" .

How Did the Stock React?

Despite beating estimates and raising guidance, TransDigm shares fell approximately 2.4% in after-hours trading:

The muted reaction despite the beat may reflect several factors:

1. Interest expense headwind: Higher debt burden reduced net income by 10% YoY despite 14% revenue growth
2. Margin compression from acquisitions: EBITDA margin of 52.4% included ~200 bps dilution from recent acquisitions
3. Strong run into earnings: Stock had gained ~5% in the month leading into earnings

What Changed From Last Quarter?

Acquisitions Accelerating

TransDigm continues its aggressive M&A strategy with ~$3.2 billion in announced deals since Q4 FY2025 :

Key Context on PMA Acquisitions:

• TransDigm has been a player in PMA space for years through existing operating units
• CEO Lisman: "We see PMA as a small but growing subsector within commercial aerospace that serves an important need for the airlines"
• No significant overlap with existing TransDigm products; businesses will run independently
• Management expects PMA to "grow a little bit above the market" but not explosive growth

M&A Firepower: Pro forma for announced deals, TransDigm has approaching $10 billion in remaining M&A capacity . Pipeline remains "active in the small to mid-size range" with focus on proprietary OE component aerospace businesses .

Balance Sheet & Capital Structure

Q1 Cash Flow:

• Operating cash flow: $830M+
• Free cash flow (EBITDA less interest, CapEx, taxes): ~$900M (higher than typical due to timing of interest/tax payments)
• Working capital investment: ~$30M consumed
• Full-year FCF guidance: ~$2.4B (unchanged, excludes pending acquisitions)

Debt Maturity Profile :

• No maturities in FY2026 or FY2027
• $2.1B secured notes due 2028
• $3.5B combined maturities in 2029 (notes + $1.2B subordinated notes)
• $910M revolver matures February 2029; $725M AR facility renews annually

Interest Rate Risk Mitigation: ~75% of TDG's $30B gross debt is hedged/fixed through FY2029 via interest rate caps, swaps, and collars . Interest expense sensitivity:

Capital Allocation

During Q1, TransDigm repurchased approximately 85,000 shares for ~$100 million, opportunistically deploying capital during a dip in the share price . CFO Sarah Wynne noted these repurchases are "anchored in the same targeted returns criteria we have consistently applied over the years" .

Capital Allocation Priorities (unchanged) :

1. Reinvest in businesses
2. Accretive, disciplined M&A
3. Return capital to shareholders (buybacks/dividends)
4. Debt paydown (unlikely at this time)

Segment Performance

The earnings presentation revealed strong performance across all market channels :

Key Segment Insights:

• Commercial OEM led with 17% growth, driven by transport aircraft deliveries up 18% YoY—the strongest growth channel this quarter
• Commercial Aftermarket transport (+8%) continues to benefit from elevated flight hours, while business jet/helicopter aftermarket (+1%) dragged overall CAM growth
• Defense revenue growth was well distributed across businesses, with OEM growth outpacing aftermarket
• Defense bookings were "robust," up YoY, and significantly outpaced sales, supporting full-year guidance

Commercial Aftermarket Growth Lag Explained

CEO Mike Lisman addressed why TransDigm's commercial aftermarket growth has lagged the broader market by 5-6 percentage points over the past year :

Distributor Inventory Dynamics

Management provided important color on distributor trends :

• POS at distributors grew double digits in Q1—end-demand remains strong
• Distributor inventory contracted, creating a headwind on sell-in (~2 percentage points drag in Q1)
• Management expects this headwind to "turn the corner" and become a tailwind in Q2-Q4 as distributor inventory normalizes
• "We track it quite a bit at the op unit level with distributors, and we think as the rest of the year shapes up, this should be something that, instead of a headwind, should hopefully become more of a tailwind"

CEO Lisman emphasized: "Bookings were strong in all three of our major market channels" .

New Business Wins

Co-COO Patrick Murphy highlighted key program wins during Q1 :

Margin Analysis

Management attributed the margin dilution primarily to recent acquisitions: "This margin includes a dilutive impact from our recent acquisitions of roughly 2.0%. Adjusting for acquisition dilution, the EBITDA margins of our base businesses improved nicely year over year" .

Q&A Highlights

On PMA Acquisition Margins

Asked whether Jet Parts and Victor Sierra can reach TransDigm-level margins, CEO Lisman was clear: "We did not model these as getting anywhere close to the TransDigm margin level. There's good volume growth here. That's part of what drives and helps you get to the 20% IRR. But in terms of how we modeled these businesses up, we did not model the margins getting to the TransDigm level" .

On Competition from PMA

Co-COO Murphy stated TransDigm sees "no material share loss from either USM or PMAs" and that operating units are "well positioned to defend ourselves there" with significantly improved on-time delivery .

On M&A Strategy and Preferences

Management confirmed an active pipeline in the small-to-mid-size range, with approaching $10 billion of M&A firepower remaining pro forma for announced acquisitions . Lisman noted: "If we had our pick, we'd aim to buy more commercial rather than defense. We're primarily a commercial supplier" .

On Commercial OEM Destocking

Patrick Murphy confirmed TransDigm believes it is "through that destocking" at tier-2 and tier-3 customers following Boeing's strike disruptions. Management is "encouraged that we're all in lockstep, supporting the Boeing and Airbus build rates" .

On Full-Year Margin Outlook

Lisman acknowledged the 52.4% EBITDA margin guidance for the year includes "a healthy dose of conservatism" and that if commercial OEM doesn't grow as fast as expected (which would provide mix headwind), margins could beat .

On Integration Progress

Both Servotronics and Simmons Precision integrations are being led by experienced EVPs with seasoned individuals from other TransDigm operating units. Murphy noted: "It's still early, but our experience today indicates that these are going to be two very good additions" .

Forward Catalysts

Near-Term

• Closing of Stellant acquisition
• Closing of JPE and Victor Sierra acquisitions (~$3.2B total capital deployment)
• Q2 FY2026 earnings (expected early May 2026)

Full-Year Watch Items

• Integration of Simmonds Precision and ability to achieve TransDigm-level margins
• Commercial aftermarket demand sustainability as flight hours normalize
• Defense budget trajectory and procurement timing
• Interest expense management with elevated debt levels

Key Takeaways

1. Beat and raise quarter: TransDigm delivered on expectations with 1.6% revenue beat, 2.6% EPS beat, and raised guidance across all metrics
2. Acquisition machine continues: ~$3.2B in pending deals with ~$10B in remaining M&A firepower
3. Distributor headwind turning to tailwind: 2 percentage point Q1 headwind from distributor destocking expected to reverse in Q2-Q4
4. Margin story evolving: Near-term dilution (~200 bps from acquisitions), but base business margins "improved nicely"
5. Strong cash generation: Operating cash flow of $830M+ in Q1, free cash flow ~$900M (ahead of typical seasonality)
6. Interest expense headwind: The $5B debt raise in Q4 FY2025 is pressuring GAAP earnings despite strong operational performance
7. Stock reaction suggests high bar: -2.4% after-hours despite beats indicates market was looking for more

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Data sourced from TransDigm 8-K, Q1 FY2026 earnings presentation, and Q1 FY2026 earnings conference call transcript filed February 3, 2026, S&P Global, and company filings.