Coming into 2017, TransDigm Group (NYSE:TDG) had been somewhat uncertain about whether it would be able to sustain growth in light of new challenges affecting parts of its business. Despite ups and downs, the aircraft components and systems specialist has done a good job in taking advantage of favorable conditions in the aerospace industry broadly, and TransDigm has sought ways to expand its potential and find new growth opportunities.

Coming into Thursday's fiscal fourth-quarter financial report, TransDigm investors were confident that the company would be able to sustain positive momentum from past quarters to produce gains in earnings and revenue. Some of those gains weren't quite as large as investors had hoped, but TransDigm has high hopes for fiscal 2018. Let's look more closely at TransDigm Group to see what's ahead for the aerospace supplier.

Blue sky with a jet aircraft and trailing contrail, with TransDigm logo and words Onward & Upward.

Image source: TransDigm Group.

TransDigm makes headway

TransDigm Group's fiscal fourth-quarter results were mixed in many investors' eyes. Revenue growth slowed to just 6%, translating to $923.9 million on the top line and falling short of the 9% growth rate that most of those following the stock were expecting to see. Adjusted net income climbed 4% to $190.7 million, but there, adjusted earnings of $3.48 per share topped the consensus forecast for $3.42 per share in profit.

Part of the reason why revenue took a hit had to do with the resolution of a potential dispute with the U.S. Department of Justice. TransDigm agreed to dispose of its Schroth Safety Products operations as part of a deal with the Justice Department, and the company said that $10.1 million in net sales was excluded from continuing operations for the quarter as a result. With TransDigm just having acquired Schroth in February, the move came abruptly among reports that antitrust-related concerns had arisen about the deal.

Even with the divestiture, TransDigm kept seeing a good balance of internal and acquisition-led growth. Organic sales rose 2.7%, making up about half of the company's overall revenue gains.

Some of the same trends among TransDigm's segments continued to appear during the fourth quarter. Sales to the company's commercial original equipment manufacturing customers were flat compared to year-earlier levels, finishing the 2017 fiscal year little changed. However, the commercial aftermarket business led TransDigm forward with growth of 4% in the fourth quarter, helping the unit to finish the fiscal year with pro forma revenue gains of about 3%. The defense segment saw similar performance, with fourth-quarter revenue rising 3% and helping defense finish the year up 4% from fiscal 2016 levels.

Internal performance also improved for TransDigm. Gross margin jumped more than 2 percentage points, as improvements in productivity, popularity of proprietary products, and lower acquisition-related costs combined to boost performance. A drop in overhead expenses also helped lift operating margin by 2 percentage points as well, despite higher borrowing costs from larger debt levels stemming from acquisitions.

How will 2018 be for TransDigm?

CEO Nicholas Howley summed up 2017. "Our commercial transport aftermarket revenues were up in the mid-single-digit percentage range," Howley said, "despite weakness in our interior businesses." The CEO said that weakness in the business jet and helicopter aftermarket space also weighed on performance, but strength in defense helped to keep the company solid.

TransDigm's projections for fiscal 2018 include reasonable growth. With commercial aftermarket and OEM revenue expected to grow by mid-single digit percentages and defense to grow in the low to mid-single digit range, TransDigm sees net sales of $3.645 billion to $3.725 billion for the year, or roughly 4% to 6%. Adjusted earnings of $12.78 to $13.42 per share would be up 3% to 8% from fiscal 2017. Those numbers are a bit weaker than the current consensus forecasts among investors, but they do give TransDigm room to make typical upgrades along the course of the year.

TransDigm has performed well over the course of the year, and investors seem enthusiastic about its ability to keep prospering in a favorable environment for aerospace. The company still has work to do, but the progress it has made so far bodes well for TransDigm's prospects for fiscal 2018.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TransDigm Group. The Motley Fool has a disclosure policy.