What Transdigm Group (TDG) Said on Its Q4 Earnings Call

Key Points

• TransDigm expects fiscal 2027 revenue to rise about 14% to a midpoint of $12.05 billion, with EBITDA As Defined up approximately 13% to $6.27 billion. Growth is forecast across commercial OEM, aftermarket and defense markets.
• Fiscal 2026 pro forma commercial aftermarket revenue grew 14% for the year, while defense revenue rose 10%; aftermarket bookings exceeded sales. Management characterized oil-price and passenger-traffic pressures as a short-term setback, not lasting demand destruction.
• The company plans about $380 million in fiscal 2027 capital spending and forecasts roughly $2.9 billion in free cash flow. It ended fiscal 2026 with $2.3 billion in cash and 5.9x net leverage, and expects leverage below 5x by year-end assuming no major capital-allocation changes.

Transdigm Group NYSE: TDG expects revenue to grow about 14% in fiscal 2027, as the aerospace parts supplier bets on continued commercial aircraft production increases, aftermarket demand and a strong defense backlog.

The company’s revenue guidance midpoint of $12.05 billion follows a fiscal 2026 in which all three major end markets posted double-digit growth in both the fourth quarter and the full year. Revenue and EBITDA As Defined exceeded the company’s most recent guidance, Chief Executive Officer Mike Lisman said on the earnings call.

Lisman described the effect of elevated oil prices and weaker-than-forecast passenger traffic on commercial aerospace as a short-term “air pocket,” rather than a source of lasting demand destruction. TransDigm repurchased approximately $940 million of stock in the fourth quarter, bringing its fiscal-year total to $2.75 billion.

Fiscal 2027 outlook

TransDigm projected fiscal 2027 EBITDA As Defined of $6.27 billion at the midpoint, up approximately 13%, and adjusted earnings per share of $47.51. The expected EBITDA margin of roughly 52% includes about two percentage points of dilution from recent acquisitions.

The forecast includes Prince & Izant, which closed in late September, and assumes no additional acquisitions or divestitures. Management expects commercial original equipment manufacturer revenue to grow at a high-single-digit to low-double-digit rate, while commercial aftermarket and defense revenue are each expected to grow at a high-single-digit rate.

Chief Operating Officer Joel Reiss said the aftermarket outlook reflects a bottom-up forecast developed with input from airline customers and distributors. He noted that revenue passenger kilometers, a measure of air traffic, are expected to slow, but said aftermarket demand does not move in lockstep with that metric.

Lisman said first-quarter revenue, EBITDA As Defined and margin are expected to be lower than in the remaining quarters because the period has about 10% fewer working days.

Aftermarket and defense growth

On a pro forma basis, commercial aftermarket revenue rose approximately 17% in the fourth quarter and 14% for the full year, Reiss said. Fourth-quarter commercial transport aftermarket revenue increased 16%, while business jet aftermarket revenue rose 20%.

Reiss said aftermarket bookings exceeded sales for the full fiscal year, and fourth-quarter bookings rose by double digits from a year earlier. The company had not seen a meaningful impact on aftermarket orders from elevated oil prices and Middle East tensions affecting passenger traffic, he said.

Commercial OEM revenue increased approximately 15% in both the quarter and the full year on a pro forma basis, supported by higher Boeing and Airbus production rates. Defense revenue rose approximately 12% in the quarter and 10% for the year, with full-year bookings significantly exceeding the prior year.

Those pro forma comparisons assume the same mix of businesses in both periods and include Simmonds Precision Products, Jet Parts Engineering and Victor Sierra Aviation, but exclude Prince & Izant.

Acquisitions and capital spending

TransDigm deployed approximately $4.4 billion on acquisitions in fiscal 2026, including four standalone businesses and nearly $440 million on 12 smaller bolt-on deals. Lisman said the company continues to focus on aerospace and defense targets and has more than $10 billion of acquisition capacity.

During the analyst question-and-answer session, Lisman said he viewed the blocked Stellant acquisition as a one-off situation that would not change TransDigm’s approach to future deals.

Reiss said capital expenditures are expected to reach about $380 million in fiscal 2027, roughly $100 million more than in fiscal 2026. About 70% of that spending is planned for new-business and productivity projects, including more than 230 new automation projects.

Debt and regulatory considerations

Chief Financial Officer Sarah Wynne said TransDigm ended fiscal 2026 with $2.3 billion in cash and a net debt-to-EBITDA ratio of 5.9 times. Approximately 75% of its $35 billion in gross debt is fixed or hedged through fiscal 2029.

Wynne forecast approximately $2.9 billion in fiscal 2027 free cash flow, using the company’s definition of EBITDA As Defined less cash interest, capital expenditures and cash taxes. She expects leverage to fall below five times by year-end, assuming no further acquisitions, divestitures, share repurchases or dividends.

Reiss also addressed pending defense right-to-repair legislation, saying the final requirements remain uncertain but that the company does not currently expect a material impact. Direct sales to the U.S. government have historically represented approximately 6% of total sales, he said, and the portion that could lend itself to repair is estimated at less than 1%.

About Transdigm Group (NYSE:TDG)

TransDigm Group Incorporated designs, produces and supplies highly engineered components for the aerospace industry. Its products include mechanical and electromechanical systems, pumps, valves, ignition systems, batteries, power-conditioning devices and cockpit components. The company serves commercial, military and business aviation markets, supplying components for both original aircraft production and the aftermarket. Its products are used on aircraft operated around the world, and its aftermarket business provides replacement parts and related support.

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