Are Triumph Group's Results a Warning for Aerospace Investors?http://www.fool.com/investing/general/2014/01/31/are-triumph-groups-results-a-warning-for-aerospace.aspx Lee Samaha
January 31, 2014
It's been a wonderful year for investors in the aerospace industry, and the indications are that 2014 will also be a strong year for the industry. All of which could lead you into a false sense of complacency. However, the recent results from aerospace component manufacturer Triumph (NYSE: TGI) should go some way to dispel that notion. Triumph did anything but, but are its results a warning signal for the sector or merely a company issue?
Triumph lowers guidance
Unfortunately, Triumph's recent results reminded investors of some of these factors. The market had priced in good prospects thanks to the strong order book at Boeing (responsible for 44.7% of Triumph's sales in the last quarter), and an anticipated step up in Triumph's earnings and cash flows in future years. Moreover, Fools know why aerospace is set for a good year in 2014. However, Triumph disappointed investors by lowering full-year guidance by $0.50 to $4.75 for three main reasons:
It's time to look at these issues in turn.
Did Triumph just wave a red flag?
The second issue is a bit more of concern for the industry, and serves as a salutary reminder that military aerospace spending remains under pressure. The bifurcation in prospects between military and commercial aerospace is well known to the market. For example, on its recent conference call General Electric (NYSE: GE) recently outlined that its fourth-quarter commercial aviation spares market was up 16%. Meanwhile, GE's military spares market was down 3%, due to sequestration issues and reduced flying hours. Overall GE reported 11% growth in services demand.
Tuning back to Triumph, its management described weak military spares sales as being "primarily" responsible for the remaining $0.28 taken off full-year guidance. It's obviously disappointing news for Triumph shareholders, but it doesn't represent any new trend in the industry. Moreover, military spending is always lumpy due to political considerations. Its overall aftermarket orders may well bounce in coming quarters.
The third issue i