TDG Q3 2025: Strong 10% aftermarket growth; OEM sales drop 7%
- Strong aftermarket and defense momentum: Q&A participants highlighted that TransDigm’s aftermarket business is performing well—with year‐to‐date commercial aftermarket growth around 10% and engine-related segments posting double-digit increases—and defense bookings remaining robust, indicating solid demand across key segments.
- Transitory OEM destocking setting up for a rebound: Executives addressed temporary OEM destocking pressures driven by lower-than-expected production rates, emphasizing that this is a short-term issue with guidance suggesting a return to positive OEM growth in Q4.
- Improving operational execution and supply chain conditions: Management noted continued improvements in supply chain performance along with disciplined margin management and effective integration of recent acquisitions, bolstering the company’s resilience and long-term growth potential.
- Soft Commercial OEM Performance: Q&A discussions highlighted that commercial OEM revenue declined by 7% year-over-year, driven by lower-than-expected production rates at Boeing and Airbus and significant destocking by customers, which could continue to pressure future earnings.
- Margin Pressure Risk: Management acknowledged that while Q3 margin performance was strong, an expected ramp-up in OEM business in Q4 is likely to weigh on margins, suggesting potential deterioration in profitability if the lower-margin OEM segment dominates.
- Lingering Supply Chain Concerns: Despite improvements, questions revealed that ongoing supply chain bottlenecks — notably casting and electronic component issues — remain unresolved compared to pre-crisis levels, posing a risk to operational stability.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales Guidance ($USD) | FY 2025 | Midpoint: $8.85B, approximately 11% growth | Midpoint: $8,790,000,000, decreased by $60M; approximately 11% higher than the prior year | lowered |
EBITDA Guidance ($USD) | FY 2025 | Midpoint: $4.685B, approximately 12% growth with an expected margin of around 52.9% | Midpoint: $4,725,000,000, increased by $40M; approximately 13% growth, with an expected margin of 53.8% | raised |
Adjusted EPS | FY 2025 | Midpoint: $36.47, representing about 7% growth | Midpoint: $36.74, up approximately 8% | raised |
Commercial OEM Market Growth Rate (%) | FY 2025 | Revenue growth expected in the low single-digit to mid-single-digit percentage range (revised down from mid-single-digit percentage range) | Revenue growth expected in the flat to low single-digit percentage range (revised downward from prior guidance) | lowered |
Commercial Aftermarket Growth Rate (%) | FY 2025 | Revenue growth expected in the high single-digit to low double-digit percentage range (unchanged) | Revenue growth expected in the high single-digit to low double-digit percentage range | no change |
Defense Market Growth Rate (%) | FY 2025 | Revenue growth expected in the high single-digit to low double-digit percentage range (revised up from high single-digit percentage range) | Revenue growth expected in the high single-digit to low double-digit percentage range | no change |
Free Cash Flow ($USD) | FY 2025 | Approximately $2.3 billion | $2,300,000,000 | no change |
Net Debt to EBITDA Ratio | FY 2025 | no prior guidance [N/A] | Comfortable operating in the five to seven range | no prior guidance |
EBITDA to Interest Expense Coverage Ratio | FY 2025 | no prior guidance [N/A] | Ended Q3 2025 at 3.3 times, above the target range of two to three | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Aftermarket Performance and Growth | Q2 2025 discussion highlighted strong aftermarket revenue growth (13%), robust bookings and positive submarket dynamics. Q1 2025 noted 9% revenue growth with solid submarket performance and Q4 2024 reported 8% growth with steady guidance. | Q3 2025 reported 6% overall commercial aftermarket growth, with distributor POS growing in double digits and sequential growth nearly flat. | Consistent focus on aftermarket growth with a slight deceleration in the current period compared to the earlier higher single‐digit rates. |
OEM Production Dynamics and Destocking Concerns | Q2 2025 showed flat OEM revenues and modest growth based on low single digits with supply chain improvements, while Q1 2025 reported a 4% decline combined with inventory visibility challenges; Q4 2024 highlighted production setbacks due to the Boeing strike and cautious OEM guidance. | Q3 2025 noted a 7% year-over-year decline in commercial OEM revenue driven by lower production rates at Boeing and Airbus plus temporary inventory destocking. | OEM challenges remain a headwind: production difficulties intensified in Q3, though destocking is viewed as temporary, continuing a cautious outlook. |
Margin Pressure and Profitability Risks | Q2 2025 mentioned a strong 54% margin with an expected mix shift towards lower-margin OEM affecting future margins; Q1 2025 emphasized stable margins through mix shifts and renegotiated OEM contracts; Q4 2024 focused on acquisition dilution and cost pressures. | Q3 2025 recorded a robust EBITDA margin of 54.4% and an increased EBITDA guidance, though potential margin headwinds remain if OEM production ramps up. | Margin performance remains solid with proactive management; while pressures from acquisitions and OEM mix persist, overall sentiment is positive. |
M&A Strategy and Acquisition Valuation | Q2 2025 stressed a disciplined approach, targeting aerospace opportunities and maintaining a 20% IRR mandate; Q1 2025 described an active pipeline with opportunistic stock repurchases; Q4 2024 noted a record year of transactions anchored by valuation discipline. | Q3 2025 detailed the closing of the Servotronics and Simmons Precision acquisitions, reinforcing a continued disciplined and strategic M&A approach. | A consistently active M&A strategy is maintained with disciplined valuation criteria and recent acquisitions underscoring ongoing strategic commitment. |
Supply Chain Performance and Operational Execution | Q2 2025 focused on ongoing OEM supply chain challenges yet noted improvements and strong operational execution; Q1 2025 discussed the impact of the Boeing strike and inventory uncertainties; Q4 2024 emphasized protecting smaller suppliers and operational excellence. | Q3 2025 reported gradual supply chain improvements (though still below 2018–2019 levels) along with solid operational execution as reflected by robust margins. | Supply chain issues are easing gradually with sustained operational excellence; overall execution remains strong despite persistent supply challenges. |
Emerging Defense Segment Momentum | Q2 2025 reported defense revenue growth near 9% with strong bookings; Q1 2025 noted 11% growth with healthy bookings and positive metrics; Q4 2024 highlighted outperformance (over 10% growth) with consistent defense momentum. | Q3 2025 recorded 13% revenue growth in defense and very strong bookings across operating units. | The defense segment continues to gain momentum with increasing growth rates and robust bookings, signaling a positive and accelerating trend. |
Capital Expenditures and Productivity Investments | Q2 2025 provided detailed free cash flow guidance ($2.3B full-year) and stressed reinvestment in productivity projects; Q1 2025 highlighted strong free cash flow (over $800M) and cost reduction initiatives; Q4 2024 noted increased CapEx (from 2% to 3% of sales) and investments in robotics. | Not specifically mentioned in Q3 2025 (N/A). | Previously a key focus with strategic investments to boost productivity; not discussed in the current period though remains critical for future efficiency. |
External Macroeconomic and Market Demand Risks | Q2 2025 covered a dynamic macro environment including tariff impacts and economic concerns, while Q1 2025 discussed uncertainties from the Boeing strike and global air traffic trends; Q4 2024 noted OEM production remaining below pre-pandemic levels and variability in aftermarket demand. | Q3 2025 indirectly addressed external risks through OEM production challenges and destocking concerns, with less explicit macroeconomic commentary. | External risks continue to influence outlook—OEM-related disruptions and market demand uncertainties persist but are viewed as transitory in the current period. |
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Margin Outlook
Q: Are margins sustainable with changing mix?
A: Management noted that margin improvement in Q3 was driven by the stronger aftermarket mix; however, as OEM shipments increase in Q4, margins may moderate slightly, so they remain cautious with guidance. -
OEM Destocking
Q: Was destocking across narrow and wide bodies?
A: Leaders confirmed that destocking affected both narrow and wide body OEM segments, viewing the impact as temporary with a return to growth expected in Q4. -
Aftermarket Trends
Q: Drop off in aftermarket shipments last weeks?
A: They explained that while there was some quarterly lumpiness in aftermarket shipments, overall growth remains consistent at a high single to low double-digit range. -
Aftermarket Acceleration
Q: Does Q4 show stronger aftermarket acceleration versus earlier quarters?
A: Management expects Q4 to accelerate toward roughly 10% year-to-date growth, despite normal quarter-to-quarter variability, indicating a rebound from temporary softness. -
POS Trends
Q: How did distributor POS perform sequentially?
A: They reported that distributor point-of-sale figures grew in the double digits, outpacing the overall aftermarket, which remained flat sequentially. -
Supply Chain Impact
Q: Is supply chain still causing bottlenecks and strike headwinds?
A: Management noted that supply chain conditions have improved compared to recent periods, though remain below pre-2018 levels; additionally, the impact of the recent strike is considered a minor headwind. -
M&A Strategy
Q: Prioritize engine content in acquisitions?
A: They clarified that their acquisition strategy targets a 20% IRR across components without selectively prioritizing engine content, ensuring a balanced portfolio. -
Product Segmentation
Q: Any product-specific destocking trends across segments?
A: The team observed no significant differentiation—destocking appears consistent across the product mix, while engine and interior segments showed relatively stronger performance. -
Defense Bookings
Q: What was defense bookings performance in Q3?
A: Defense bookings were robust and broadly distributed, suggesting strong momentum for both OEM and aftermarket segments in the upcoming fiscal period. -
Competitive Landscape
Q: How are OEM second sourcing, PMA threats evolving?
A: Management indicated there have been no material changes from second sourcing or PMA competition; the recent Simmons acquisition process was a positive outcome, and vigilance remains a priority.
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