Triumph Group posted a net loss of $12.9 million ($0.16 per share) in its fiscal 2024 third quarter (Q3) as its earnings fell slightly short of Wall Street expectations, but its management remains bullish about expected benefits from the sale of its Product Support group.
While investment bank Jefferies had expected the company to lose $0.09 per share, a consensus estimate predicted a loss of $0.14 per share.
In its earnings call, Triumph’s management did not dwell on the quarterly loss and instead focused on what they see as strong growth momentum generated by the $725 million sale of the company’s Product Support group to AAR Corp announced in December 2023. The Product Support business has a strong position in the aftermarket, serving both the commercial and military segments. That deal for Triumph “is a game-changing transaction, one that will provide both financial and strategic benefits,” CEO Dan Crowley said in the call, adding that the sale of the business aligns with the company’s plan to “focus on differentiated components and systems of our own design and to own our aftermarket tail.”
CFO Jim McCabe explained what the company sees as the financial benefits to the deal, saying the sale of the Product Support business “will transform Triumph’s balance sheet.” Triumph expects that the transaction’s net proceeds of approximately $700 million will reduce outstanding debt by more than 40% and cash interest expense by about $56 million.
Also auguring well for Triumph was sales growth of 13%, reaching $285 million in the December quarter. While military OE and aftermarket sales both decreased modestly, Systems and Support, commercial OE, and commercial aftermarket sales all increased.
Triumph’s backlog at the Dec. 31, 2023, end of its fiscal Q3 was $1.87 billion, up 18% from the same period a year earlier.
In a response to a question from Bank of America analyst Ron Epstein about the impact of the temporary grounding of the Boeing 737-9 MAX on Triumph’s business, Crowley said, “in terms of percent of our sales, it has gone up to about 14% ... the MAX is just a huge, important program with a big backlog. I do have confidence that they will fix the issues they’ve got ... I think this is a really important inflection time for Boeing and for the entire supply chain.”
Referencing a conversation he had with Boeing Commercial Airplanes CEO Stan Deal, Crowley said that “about every seven years, we all have to relearn certain disciplines in the aerospace industry, whether it’s torquing fasteners or crimping connectors or FOD [foreign object debris] awareness, and that’s driven by two dynamics. One is changes in make or buy, where you had the supply chain where you have new players coming in that are less familiar. And the second is a change in the workforce makeup,” which has been evident as the industry has emerged from the pandemic.
The key is to put in place controls, culture and tools that allow those newer employees to ensure quality, Crowley said, adding, “And that’s exactly what Boeing is doing. And I’m confident they’re going to get there until all the fixes are in place.”
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