Sign in
TG

TransDigm Group INC (TDG)·Q4 2025 Earnings Summary

Executive Summary

  • Solid Q4 capstone: TransDigm beat on revenue and adjusted EPS, with net sales $2.44B (+12% YoY) and adjusted EPS $10.82; EBITDA As Defined margin remained structurally high at 54.2% despite mix headwinds . Versus S&P Global consensus, revenue and adjusted EPS were ahead, while reported EBITDA (non-“As Defined”) was slightly below estimates (see Estimates Context).*
  • Full-year FY25 outperformed guidance: Revenue $8.83B (+11% YoY) and EBITDA As Defined $4.76B (+14% YoY), both above the high end of the most recent FY25 guide; commercial aftermarket and defense each grew double-digits in Q4; OEM returned to growth after Q3 destocking .
  • FY26 initial guide: Revenue $9.75–$9.95B (+11.5% at midpoint), EBITDA As Defined $5.08–$5.23B (+8.2% at midpoint), adj. EPS $36.49–$38.53; margin guide ~52.3% reflects ~200 bps M&A dilution and modest mix headwind (OE/defense) vs FY25 base .
  • Capital allocation remains a catalyst: Q4 included a $90/share special dividend (~$5.2B total), $5B new debt, and post-quarter close completion of Simmonds Precision Products (RTX) for ~$765M; buybacks totaled ~$0.5B in FY25 plus ~$0.1B in October .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth and margins: Q4 revenue +12% YoY; EBITDA As Defined margin 54.2% (+160 bps YoY) on sustained aftermarket strength and disciplined operating execution . CEO: “Our EBITDA As Defined margin for the quarter was 54.2%, up approximately 160 basis points... exceptional margin performance” .
  • Aftermarket and defense outperformed: Commercial aftermarket +~11% YoY; defense +~16% YoY in Q4; bookings were strong across submarkets and defense outlays supported guidance . POS at distributors grew double digits; inventory in channel reduced by ~0.5 months, indicating healthy sell-through .
  • Liquidity and FCF: Operating cash flow in Q4 exceeded $500M, cash ended ~$2.8B; FY25 free cash flow ~$2.4B; interest coverage ~3.2x and 75% of ~$30B gross debt fixed through FY2029 .

What Went Wrong

  • OEM softness earlier in year: Commercial OEM revenues were down ~1% for FY25 due to Boeing strike impacts and Airbus ramp challenges; although Q4 returned to +7% growth, the FY trajectory was below initial expectations .
  • FY26 margin dilution: Guide embeds ~200 bps EBITDA margin dilution from recent acquisitions and additional ~50–100 bps headwind from OE/defense mix, muting otherwise typical base-business margin expansion .
  • Higher interest burden: FY26 interest expense guided to ~$1.9B (weighted avg rate ~6.3%), compressing GAAP net income despite top-line growth and EBITDA As Defined expansion .

Financial Results

Income Statement and Margins – Last 3 Quarters (oldest → newest)

MetricQ2 2025Q3 2025Q4 2025
Revenue ($MM)$2,150 $2,237 $2,437
Gross Profit ($MM)$1,274 $1,332 $1,470
Operating Income ($MM)$991 $1,039 $1,161
Net Income ($MM)$479 $493 $609
GAAP EPS ($)$8.24 $8.47 $7.75
Adjusted EPS ($)$9.11 $9.60 $10.82
EBITDA As Defined ($MM)$1,162 $1,217 $1,320
EBITDA As Defined Margin (%)54.0% 54.4% 54.2%

Notes: Q4 GAAP EPS reduced by $2.75/share due to dividend equivalent payments linked to $90 special dividend .

Q4 2025 vs Prior Year

MetricQ4 2024Q4 2025YoY
Revenue ($MM)$2,185 $2,437 +11.5%
GAAP EPS ($)$5.80 $7.75 +34%
Adjusted EPS ($)$9.83 $10.82 +10%
EBITDA As Defined ($MM)$1,149 $1,320 +14.9%
EBITDA As Defined Margin (%)52.6% 54.2% +160 bps

Balance Sheet / Liquidity Snapshots (End of Period)

MetricQ2 2025Q3 2025Q4 2025
Cash & Equivalents ($MM)$2,426 $2,792 $2,808
LT Debt ($MM)$24,306 $24,268 $29,167
Trade AR – Net ($MM)$1,442 $1,518 $1,617
Inventories – Net ($MM)$2,010 $2,083 $2,095

Channel/End-Market Color (Q4 YoY growth)

  • Commercial OEM revenue +7% (FY25 -1% YoY); bookings up >20% in commercial transport; destocking headwinds abated into Q4 .
  • Commercial aftermarket revenue +~11% (FY25 +10%); all submarkets positive; distributors’ POS up double digits .
  • Defense revenue +~16% (FY25 +13%); bookings strong; OEM and AM both growing .

Q4 2025 Results vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($MM)$2,402.8*$2,437 +$34.2
Adjusted EPS ($)$10.05*$10.82 +$0.77
EBITDA ($MM)$1,290.7*$1,269 (EBITDA) -$21.7

*Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY26N/A (initial)$9.75–$9.95 Initial
Net Income ($B)FY26N/A$1.906–$2.026 Initial
GAAP EPS ($)FY26N/A$31.55–$33.59 (58.5M shares) Initial
EBITDA As Defined ($B)FY26N/A$5.075–$5.225; margin ~52.3% Initial
Adjusted EPS ($)FY26N/A$36.49–$38.53 Initial
Tax Rate (%)FY26N/A22–24% Initial
Interest Expense ($B)FY26N/A~$1.9 (Wtd avg ~6.3%) Initial
Capex ($MM)FY26N/A~300 Initial
Market AssumptionsFY26N/AOEM: HSD–mid-teens; Aftermarket: HSD; Defense: MSD–HSD Initial

Management noted ~200 bps margin dilution from 2025–26 acquisitions (Simmonds, Servotronics) and ~50–100 bps additional headwind from OE/defense mix in FY26 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 FY25)Current Period (Q4 FY25)Trend
Commercial OEM ramp & destockingQ2: OEM roughly flat; bookings improving; watching Boeing/Airbus; guidance included risk bands . Q3: OEM below expectations due to build rate/destocking; lowered FY25 sales guide mid-point .Q4: OEM +7% YoY; destocking headwind behind them; wider 2026 OEM growth bracket to reflect ramp uncertainty .Improving but still bumpy
Aftermarket strengthQ2: +13% YoY; POS up double digits; engines led . Q3: moderated to ~6% (per Q4 Q&A) .Q4: +~11% YoY; all submarkets positive; distributors POS up double digits; channel inventory down ~0.5 month .Re-accelerated in Q4
DefenseQ2: +9% YoY with strong bookings . Q3: still robust .Q4: +~16% YoY; strong bookings; FY26 guide assumes MSD–HSD growth (conservative given lumpiness) .Strong; prudent FY26 outlook
PricingQ2: Offset inflation plus some real price; minimal tariff impact .Q4: Same approach for 2026; no change planned .Steady
Automation/Capex & headcountQ2: Continued productivity focus .Q4: >150 automation projects; ~$300M capex; aim to keep headcount roughly flat while output rises .Scaling productivity
M&A & capital returnsQ2/Q3: Active pipeline; repurchases; special dividends part of toolkit .Q4: Closed Simmonds; FY25–Oct capital deployed ~$7B across M&A, $90 special dividend, and buybacks .Active, disciplined
Regulatory/tariffsQ2: Limited tariff headwind expected .Q4: No material change; DoD acquisition reform seen as opportunity for firm fixed-price solutions .Stable/constructive

Management Commentary

  • “Our strong fourth quarter finish resulted in surpassing the high end of our most recently issued fiscal 2025 revenue and EBITDA As Defined guidance.” – CEO Mike Lisman .
  • “Commercial aftermarket performed well and defense remained robust... commercial OEM revenue increased in the high single digits as we supported higher build rates at the OEMs.” .
  • “This guidance includes an additional 200 basis points of margin dilution from recent acquisitions... Adjusting for these... margins would have increased more versus fiscal 2025.” – CEO .
  • “Defense sales and bookings can be lumpy... we are going to generally be a little bit more conservative [for FY26].” – CEO .
  • “We anticipate capital expenditures of about $300 million in fiscal 2026... >150 new automation projects planned.” – Co-COO Joel Reiss .
  • “EBITDA to interest expense coverage... 3.2x... approximately 75% of our $30 billion gross debt balance is fixed through fiscal 2029.” – CFO Sarah Wynne .

Q&A Highlights

  • Defense growth sustainability: FY26 defense guide set conservatively (MSD–HSD) given lumpiness despite strong bookings/outlays; company remains competitive on new platforms (e.g., F‑47 content) .
  • Margin trajectory ex-M&A/mix: Underlying base business margin expansion remains in the ~100–150 bps range; dilution from Simmonds/Servotronics and OE/defense mix masks this in FY26 .
  • OEM destocking largely behind: Management does not expect further destocking headwind in FY26; wider range reflects ramp uncertainty at OEMs .
  • Distribution dynamics: Distributor POS up double digits; channel inventory reduced ~0.5 month into fiscal year-end, indicating healthy sell-through .
  • Capex and headcount: ~$300M FY26 capex focused on automation and productivity; aim to keep headcount roughly flat while supporting higher OE/defense volumes .

Estimates Context

  • Q4 delivered a clean beat on S&P Global revenue and adjusted EPS, modest shortfall on reported EBITDA (not “As Defined”): Revenue $2,437MM vs $2,402.8MM*, Adjusted EPS $10.82 vs $10.05*, EBITDA $1,269MM vs $1,290.7MM* .*
  • Prior quarters: Q3 revenue slightly below, adj. EPS slightly below; Q2 revenue modestly below; underscores intra-year volatility from OEM mix/destocking.*
  • Implication: Street models likely move higher on FY26 revenue/adj. EPS given initial guide; margin mix and M&A dilution remain key modeling nuances.*

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Durable margin model: Despite OEM/defense mix headwinds and M&A dilution, TDG sustained 54%+ EBITDA As Defined margins; base-business margin expansion remains intact beneath the surface .
  • Aftermarket resilience: Double‑digit aftermarket growth and strong distributor POS indicate healthy demand into FY26; watch engines/interiors and regional refurb trends (Asia/Middle East) .
  • OEM path improving but uneven: Q4 inflection to +7% YoY with commercial transport bookings >20% supports FY26 guide; ramp execution at OEMs is the key swing factor .
  • Capital allocation remains a core alpha driver: Largest-ever $90 special dividend, active buybacks, and disciplined M&A (Simmonds) alongside ample liquidity (~$2.8B cash) underpin flexibility .
  • Interest burden a headwind to GAAP EPS: ~$1.9B FY26 interest and ~6.3% weighted average rate compress GAAP net income; adj. EPS growth expected to be modest YoY at the midpoint .
  • FY26 setup: Guide embeds conservative defense and OEM assumptions plus M&A/mix dilution; execution on integration (Simmonds/Servotronics) and OEM cadence could unlock upside .
  • Monitoring list: OEM monthly rate progress, aftermarket POS/order trends, defense award cadence, integration margin ramps, and capital deployment pacing (buybacks/specials vs pipeline) .
Citations
- Q4 FY25 8-K press release and financial tables: **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:0]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:2]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:3]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:8]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:9]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:10]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:11]** **[1260221_0001260221-25-000078_exhibit991tdg2025q4earning.htm:12]**
- Q4 FY25 earnings call transcript: **[0001260221_2281497_1]** **[0001260221_2281497_2]** **[0001260221_2281497_3]** **[0001260221_2281497_4]** **[0001260221_2281497_5]** **[0001260221_2281497_7]** **[0001260221_2281497_8]** **[0001260221_2281497_9]** **[0001260221_2281497_10]** **[0001260221_2281497_11]** **[0001260221_2281497_12]** **[0001260221_2281497_14]** **[0001260221_2281497_15]**
- Q4 press releases (results and logistics): **[1260221_20251112CL21760:0]** **[1260221_20251112CL21760:1]** **[1260221_20251112CL21760:2]** **[1260221_20251112CL21760:3]** **[1260221_20251103CL12731:0]**
- Simmonds acquisition press release: **[1260221_20251006CL90081:0]**
- Q3 FY25 8-K press release and financial tables: **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:0]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:2]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:7]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:8]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:9]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:10]** **[1260221_0001260221-25-000049_exhibit991tdg2025q3earning.htm:11]**
- Q2 FY25 8-K press release and financial tables: **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:0]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:2]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:7]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:8]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:9]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:10]** **[1260221_0001260221-25-000024_exhibit991tdg2025q2earning.htm:11]**

Notes on estimates: Values retrieved from S&P Global.