TransDigm Reports Fiscal 2026 Results and Sets Fiscal 2027 Outlook

TransDigm Gr (NYSE: TDG ) reported fourth-quarter financial results on Tuesday. The transcript from the company's fourth-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary TransDigm Gr Incorporated reported strong financial performance for fiscal 2026, exceeding revenue and EBITDA guidance with double-digit growth across major markets. The company executed significant capital allocation activities, including $2.75 billion in share repurchases and $4.4 billion in M&A, acquiring high-quality companies like Simmons Precision Products and Jet Parts Engineering. Guidance for fiscal 2027 projects continued growth with a revenue midpoint of $12.05 billion and EBITDA of $6.27 billion, despite a 2% margin dilution from recent acquisitions.

Commercial aftermarket demand remains robust, and production rates at Boeing and Airbus are favorable, supporting a positive outlook for commercial OEM and Defense markets. Management reaffirmed commitment to disciplined capital allocation and M&A strategy, focusing on smaller, high-return targets while maintaining substantial liquidity and financial flexibility. Full Transcript OPERATOR Good day and welcome to the Q4 2026 TransDigm Gr Incorporated Earnings Conference Call. At this time all participants are in a listen-only mode.

After the speaker's presentation there will be a question-and-answer session. To ask a question you will need to press star 1-1 on your touchtone telephone. Please note this call may be recorded. I would like to turn the call over to Mary Hartman, Director of Investor Relations.

Please go ahead. Mary Hartman (Director of Investor Relations) Thank you and welcome to TransDigm Gr's fiscal 2026 first quarter earnings conference call. Presenting on the call this morning are TransDigm Gr's Chief Executive Officer Mike Lisman, Chief Operating Officer Joel Reiss and Chief Financial Officer Sarah Wynn. Also present for the call today is our Co-Chief Operating Officer Patrick Murphy.

Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the Company would like to remind you that statements made during this call which are not historical in fact are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the Company's latest filings with the SEC available through our investor section of our website at sec.gov.

The Company would also like to advise you that during the course of the call we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Mike. Mike Lisman (Chief Executive Officer) Good morning and thanks for calling in today.

We have a full agenda for this morning's call as we're giving our guidance for our new fiscal year. So I'm going to abbreviate our usual strategy overview and get right down to business. I'll start with a quick reminder of how we run the company and think about capital allocation, then comment on our fourth quarter and then walk through our fiscal 2027 outlook. Joel and Sarah will follow with additional color on our operations and financials respectively.

As those of you who have followed us for a long time know, TransDigm Gr's approach is consistent and unchanged. We own and operate highly engineered proprietary aerospace businesses with significant aftermarket content. We run those businesses with a simple value-based operating methodology, a decentralized organizational structure and a unique compensation system combined with disciplined capital allocation. This approach is designed to deliver private equity-like returns with the liquidity of a public market and over our history it has consistently delivered.

Now some comments on our fourth quarter. We wrapped up fiscal 2026 with a good finish. The team executed exceptionally well with all three of our major end markets delivering double-digit growth for both the quarter and the full year. Revenue and EBITDA as defined for the year exceeded our most recent guidance, and commercial aftermarket demand remains healthy despite elevated oil prices and RPKs below what we forecasted when we first gave fiscal 2026 guidance a year ago.

As we've said before, aftermarket demand doesn't move in lockstep with RPKs. In past short-term disruptions like this one, we've typically seen demand return to trend line once the situation resolves, meaning demand recovers as if the disruption had not occurred. We view the current environment as a short-term air pocket, not a source of long-term demand destruction for commercial aerospace. Consistent with our long-term focus, we took advantage of the air pocket's effect on our share price to repurchase approximately $940 million of TransDigm Gr stock in the quarter, bringing fiscal 2026 total repurchases to $2.75 billion.

As you'll hear in more detail shortly, our outlook for commercial aftermarket into fiscal 2027 remains positive and we're on track for continued growth. Our operating units have done a solid job of helping their customers catch up on pent-up maintenance demand these last several months and continue to provide excellent service. This means high-quality parts on time to their airline end customers. Commercial OEM is trending favorably as production rates at Boeing and Airbus continue to increase.

Our results for the quarter and the year reflect that strength and our guidance assumes the momentum carries into fiscal 2027. Finally, Defense delivered its third consecutive quarter of double-digit growth. As we've noted on prior calls, we built a very healthy backlog in Defense this year, which sets us up well for another strong performance in fiscal 2027. Our EBITDA as defined margin was 53% in the quarter, our highest of the year, driven by higher volumes and excellent execution from our teams.

That includes roughly 2 percentage points of dilution from recent acquisitions. As a reminder, new acquisitions typically dilute margins in the near term, and we expect these margins to then improve over time. We also generated strong cash flow in the fourth quarter and ended the year with nearly $2.3 billion in cash. Next, an update on our capital allocation activities and priorities.

Fiscal 2026 was a successful year for capital allocation: over $7 billion deployed through M&A and share repurchases. M&A deployed approximately $4.4 billion in the fiscal year on high-quality companies including Simmons Precision Products, Jet Parts Engineering, Victor Sierra Aviation and, most recently, Prince and Isant which just closed in late September. Along with our four new standalone acquisitions, we invested nearly $440 million in 12 smaller acquisitions which we term bolt-on acquisitions.

These bolt-ons may not be large enough to exist as standalone operating units within TransDigm Gr, but they are exceptional businesses and tuck nicely into one of our existing operating units. The bolt-on M&A activity has been another effective way to fuel the growth of our existing operating units across our 57 businesses. We have capable, experienced teams who know and cover their product space very well and this often results in the identification of good businesses that want to come into the TransDigm Gr fold as a long-term home. When this happens, our op unit teams drive the acquisition process and integrate the acquired target into their business.

We will continue to source smaller targets like these along with our traditional standalone acquisitions, while TransDigm Gr's corporate M&A team remains focused primarily on new standalone operating unit acquisitions. We also have 57 op unit teams working to drive bolt-on acquisitions for their respective businesses. Regarding the current M&A activities and pipeline, we continue to actively look for opportunities that fit our model and, as usual, the potential targets are mostly in the small and mid-sized range. I'd like to take a moment to discuss how our M&A efforts have evolved over time.

For more than 30 years we've been busy in the acquisition business and gradually broadened the funnel of products that meet our criteria. In the early years the focus was mechanical components, then broadened into avionics through the acquisition of businesses like Avtech, followed by interior components with businesses like AmSafe, Schneller and Pexco, and later select electronic products with acquisitions such as Data Device Corporation. More recently we broadened into aerospace test and measurement and PMA. And there have been unwavering constants the whole way through.

First, our returns have remained high, 30% plus equity IRRs, using the same returns framework we have long utilized. Second, and probably most importantly, we have remained disciplined in our approach to M&A. This has meant a gradual broadening of the funnel rather than a rapid one and the pursuit of mid-sized M&A targets as a percentage of our enterprise value rather than the larger so-called company-defining acquisitions that often become business school case studies when they fail. As we look out over the coming years, I expect these elements of our M&A approach to remain the same: high returns and a disciplined process that broadens our funnel gradually.

The capital allocation priorities at TransDigm Gr are unchanged. First, we reinvest in our businesses. Second, do accretive disciplined M&A. And third, return capital to our shareholders via buybacks or dividends.

A fourth option, paying down debt, seems unlikely at this time, but we continue to consider it. We are always evaluating all four of these options. As we sit here today, we have significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Specifically, we have substantial M&A firepower and capacity remaining in excess of $10 billion.

Moving to our outlook for fiscal 27, our guidance can be found on Slide 7 of the presentation for today. It includes our most recent acquisition, Prince and Isant, and assumes no additional acquisitions or divestitures. The midpoint of our revenue guidance is $12.05 billion, up approximately 14% over prior year. As a reminder and consistent with past years, our first quarter has about 10% fewer working days than the following quarters.

So we expect Q1 revenue, EBITDA as defined and EBITDA as defined margin to be lower than the rest of the year. Our revenue guidance is based on the following market channel growth rate assumptions. We expect commercial OEM revenue growth in the high single-digit to low double-digit percentage range, and we expect commercial aftermarket revenue growth in the high single-digit percentage range. We expect Defense revenue growth in the high single-digit percentage range as well.

The midpoint of fiscal 2027 EBITDA as defined guidance is $6.27 billion, or up approximately 13% to the prior year, with an expected margin of around 52%. That margin figure includes approximately 2 full percentage points of dilution related to recent acquisitions. The midpoint of adjusted EPS is expected to be $47.51, and Sarah will discuss the financial assumptions behind our guidance in more detail shortly. We believe we're well positioned as we enter fiscal 2027 and we'll continue to closely watch how the aerospace and capital markets develop and adjust as needed.

I'd like to wrap up my comments by emphasizing how pleased we are with the company's performance this year. Our teams continued to provide their customers with excellent service while also driving significant growth and expanded margins across the business. We remain focused on delivering for customers and shareholders in fiscal 2027. With that, I'll hand it over to Joel Reiss to review our recent performance and a few other items.

Good morning everyone. Joel Reiss (Co-Chief Operating Officer) I'll start with our typical review of results by key market category. For the remainder of the call, I'll provide commentary on a pro forma basis compared to the prior year period in 2025. That is assuming we own the same mix of businesses in both periods.

For reference, The market discussion includes the acquisitions of Simmons Precision Products, Jet Parts Engineering, and Victor Sierra Aviation, but excludes the Prince and Isant acquisition which closed in late September at the end of our fiscal year. For the fiscal 2027 guidance, all completed acquisitions are considered, including Prince and Isant. In the Commercial market, we will split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 15% for both Q4 and for the full fiscal year compared with the prior year periods.

Commercial OEM wrapped up the year with another strong performance. Commercial transport OEM revenues, which exclude the business jet market, were up 25% over the comparable prior period. The strength is driven by the increased production rates at Boeing and Airbus. Our operating units executed well in support of this year's ramp-up, and we are well prepared for the next rate step-up.

Commercial OEM bookings posted another quarter of solid growth compared to the same prior-year period, significantly outpacing sales. The strength of our bookings both in the fourth quarter along with the full year provides good momentum carrying into fiscal 2027, consistent with prior year. The commercial OEM guidance we are giving today contains what we believe is an appropriate level of risk around the stated Airbus and Boeing build rates for the fiscal 2027 year. Now, moving on to our commercial aftermarket business discussion.

Total commercial aftermarket revenue increased by approximately 17% in Q4 and 14% for the full year compared with the prior year periods. Excluding Jet Parts Engineering and Victor Sierra Aviation, growth rates for both Q4 and the full year have been the same. This marks three quarters in a row of double-digit revenue growth within commercial aftermarket. Nearly all submarkets delivered strong performances in the quarter.

Our commercial transport aftermarket revenue growth, which excludes our business jet submarket, was up 16%, combining solid growth in the submarkets of engineering, passenger, and interiors. The business jet market also had an exceptionally strong quarter of 20% versus prior year. Q4 commercial aftermarket bookings exceeded sales for the full fiscal year, and Q4 bookings were up double digits over the prior-year quarter. Additionally, point of sale at our distributors maintained a healthy growth rate versus the prior-year quarter, and total months on hand at our major distributors was effectively unchanged.

To date, we have not yet seen a meaningful impact on our commercial aftermarket orders given the elevated oil prices and tension in the Middle East impacting RPKs. The demand remains healthy, and we continue to monitor the situation in close partnership with our customers. As always, we will quickly take appropriate action if needed. Now shifting to our Defense market.

Defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 12% in Q4 and 10% for the full year compared with the prior year periods. The defense market tends to have lumpy order and delivery cycles, but the 2026 fiscal year stood out for delivering consistently strong sales throughout the year while also building a healthy backlog heading into the new fiscal year. As noted in prior quarters, this is driven by a combination of new business wins and excellent operational execution by our teams. Q4 defense revenue growth was well distributed across our businesses and customer base.

Defense bookings for the full year significantly surpassed the prior year and support the guidance for high single-digit revenue growth in fiscal 2027. Additionally, the U.S. government spending environment remains strong with outlays up considerably over the prior year. While the overall defense environment and demand is favorable, the timing at the quarterly level remains difficult to predict with accuracy.

Looking ahead, we are confident that the defense business is well positioned to deliver strong results in fiscal 2027. Before moving on from defense, I'd like to briefly address the pending right-to-repair legislation since we've received a number of questions on it since our last call. First, let me be clear. The Department of Defense and our defense customers are very important to us.

We support the Department's goal of keeping the warfighter's equipment ready and available, and whatever form the final legislation takes, we will work with the Department to comply with it and support its implementation. We remain committed to delivering high-quality parts on time. The House-passed FY27 NDAA and the Senate Armed Services Committee's version both include provisions on the government's access to technical data and repair. The two versions differ in important ways, and we understand the final bill is still being worked out.

Key details, including whether and how any requirements apply to existing contracts and flow down through the supply chain, won't be known until final language is enacted and the Department issues implementing regulations. Based on what we know today, we do not expect this to have a material impact on our business for three reasons. First, the vast majority of our new product development, commercial and defense, is self-funded, developed at our own expense.