Triumph Group (TGI) Down 33.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Triumph Group (TGI). Shares have lost about 33.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Triumph Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Triumph Group Beats on Q3 Earnings, Tweaks EPS View

Triumph Group adjusted earnings in third-quarter fiscal 2020 (ended Dec 31, 2019) were 69 cents per share, which surpassed the Zacks Consensus Estimate of 66 cents by 4.5%. The bottom line also improved 64.3% from 42 cents recorded in the prior-year quarter.

Including one-time adjustments, the company incurred GAAP loss of 27 cents per share in the fiscal third quarter compared with loss of 62 cents incurred in the year-ago quarter.

Improved operating income generated by the Aerospace Structures segment primarily contributed to the year-over-year improvement in the bottom- line figure.

Total Sales

Net sales in the quarter under review came in at $704.7 million, outpacing the Zacks Consensus Estimate of $675 million by 4.4%. However, the top line declined 12.8% on a year-over-year basis.

After taking divestitures into account, organic sales in the quarter went up 8% year over year driven by increased volumes on Airbus commercial programs, military rotorcraft components, aftermarket accessory services and legacy structures programs.

Operational Highlights

In third-quarter fiscal 2020, the company generated adjusted operating income of $64 million, which improved 70.3% from the year-ago quarter’s figure. Adjusted operating margin of 9.1% increased 450 basis points from 4.5% in the third-quarter of fiscal 2019.

Interest expenses and other amounted to $33.2 million, up 13.2% from $29.3 million in the prior-year quarter.

Backlog came in at $3.34 billion, down year over year and on a sequential basis due to divestitures, sunsetting programs and production rate reductions.

Segmental Performance

Aerospace Structures: Segment sales totaled $369 million, down 24.8% from $490.3 million in the year-ago quarter. Operating income was $18.3 million, reflecting a significant improvement from operating loss of $49.8 million incurred in the year-ago period.

Integrated Systems: Segment sales rose 9% year over year to $275.2 million. Operating income was $47.9 million, up 19.9% from the year-ago level of $39.9 million.

Product Support: Segment sales declined 10.5% year over year to $64 million in the reported quarter. Operating income amounted to $9.5 million, down 16.5% from the year-ago figure of $11.5 million.

Financial Position

As of Dec 31, 2019, Triumph Group’s cash and cash equivalents totaled $53.6 million, compared with $92.8 million as of Mar 31, 2019.

Its long-term debt (excluding current portion) amounted to $1.40 billion as of Dec 31, 2019, compared with $1.48 billion as on Mar 31, 2019.

Net cash generated from operating activities in the first nine months of fiscal 2020 was $39.3 million, compared with net cash used worth $193.1 million a year ago.

The company’s capital expenditures were $27.3 million in the first nine months of fiscal 2020 compared with $34.8 million in the prior-year quarter.

Guidance

Triumph Group partially reduced its fiscal 2020 guidance.

It reduced the upper end of its adjusted earnings per share projection from $2.35-$2.95 to $2.35-$2.55. The Zacks Consensus Estimate for the metric, pegged at $2.54, lies above the mid-point of the company’s newly guided range.

Based on anticipated aircraft production rates and including the timing of pending program transfers, the company continues to expect revenues in the $2.8-$2.9 billion range. The Zacks Consensus Estimate for the same is pegged at $2.88 billion, which lies above the mid-point of the company’s projection.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -19% due to these changes.

VGM Scores

At this time, Triumph Group has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Triumph Group has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.