Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Triumph Group Inc (TGI, Financial) reported a 7% year-over-year sales growth, driven by strong aftermarket demand.
- The company expanded its margins through price increases and a favorable sales mix.
- Triumph Group Inc (TGI) retired an additional $120 million of debt, strengthening its balance sheet.
- The company received credit rating upgrades from both Moody's and S&P.
- Aftermarket sales were up 27% year over year, benefiting from a rising average fleet age and the 787 landing gear overhaul cycle.
Negative Points
- Military OEM production demand saw a modest reduction, impacting overall military segment revenues.
- The interiors business continues to face challenges due to inflationary impacts and supply chain cost increases.
- Triumph Group Inc (TGI) experienced a legal contingency loss of $7.5 million related to a legacy environmental matter.
- The company faced supply chain challenges, particularly affecting the V-22 program and LEAP order deferrals.
- Free cash use in the first quarter was $113 million, driven by seasonally higher working capital and timing of OEM rate ramps.
Q & A Highlights
Q: Can you explain the expected positive swing in free cash flow in the second half of the year? Is it related to the 787 work or the aftermarket? What rate do you expect for the 737 MAX?
A: The positive swing is due to strong performance from our actuation and engine controls businesses, independent of the MAX. Our geared solutions business will benefit from new programs like the T-7A in the second half. The interiors business is currently down, but we expect an upswing in volume by Q4 as the MAX rate comes back. Overall, it's a mix of MRO, military, and commercial coming back strong in the second half. (Daniel Crowley, CEO; James McCabe, CFO)
Q: What kind of volume do you need on the MAX to achieve positive EBITDAP in interiors, and when do you expect to get there?
A: Interiors need to reach a production rate of about 30 a month to be profitable. Currently, we're at 12 to 14 a month. If Boeing reaches 40 next year, it will be solidly profitable. We've also taken cost reduction measures and are improving operations, which will help profitability. (Daniel Crowley, CEO)
Q: How is the Airbus rate ramp delay impacting Triumph?
A: The delay has a modest impact. We're building at about 50 A320-X family units a month, heading to 60 next year. The robust rate allows us to meet economic production thresholds and support aftermarket needs. (Daniel Crowley, CEO)
Q: Can you discuss the impact of the V-22 grounding on defense results?
A: The V-22 crash was unrelated to Triumph's hardware. However, the pause in aircraft use affects OEM deliveries and aftermarket, contributing to softness in our military business. Long-term, the V-22 will remain in operation for decades. (Daniel Crowley, CEO)
Q: What are you factoring into your outlook for the possibility of a strike at Boeing?
A: We've assumed a demand of about 30 a month for most factories. If a strike occurs, we'll likely build inventory without adjusting build rates. Boeing has been responsible in allowing the supply chain to continue building at economic rates. We have contingency plans in place if needed. (Daniel Crowley, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
