Volatility in the stock market has made investors cautious about even the strongest of industries. The aerospace sector has been among the fastest-growing areas of the economy over the past decade, and heavy demand for new aircraft has made it essential for manufacturers to turn to aerospace supplier TransDigm Group (TDG -1.11%) to get the components and systems that they need in order to deliver planes to their end customers on time.

Coming into Tuesday's fiscal fourth-quarter financial report, TransDigm investors were looking for solid growth in sales and earnings from the aerospace supplier. TransDigm's results restored confidence in the company after a spotty performance last quarter, and sustained good conditions for the industry as a whole seem to bode well for the supplier's prospects.

Blue sky with jet showing contrail behind.

Image source: TransDigm Group.

TransDigm prepares for liftoff

TransDigm Group's fiscal fourth-quarter results were a nice end to a solid year. Sales climbed to $1.05 billion, which was up 14% from year-ago levels and outpaced the roughly 12% growth rate that most of those following the stock had anticipated. Net income from continuing operations rose 25% to $230.3 million, and after accounting for some one-time items, adjusted earnings of $4.44 per share topped the consensus forecast among investors of $4.30 per share.

The best news for TransDigm came from its commercial original equipment manufacturing segment, where sales picked up dramatically. After seeing just a 1% year-over-year rise during the previous quarter, the company managed to post 6% growth in commercial OEM sales for the fiscal fourth quarter, salvaging a tough year for that part of the business, in which full-year revenue growth was limited to just 1%.

Elsewhere, results were mixed. Commercial aftermarket sales were higher by 6%, which was slower than its corresponding growth rate three months ago but was still enough to give the division the highest growth rate for the full fiscal year compared to fiscal 2017. Defense sales perked up impressively, jumping 12% from last year's fiscal fourth quarter and producing 5% full-year growth for fiscal 2018 compared to 2017.

Various expense items offset each other on TransDigm's income statement. Income tax savings came from tax reform efforts at the end of 2017, producing about $12 million in savings for the quarter. However, TransDigm paid almost $17 million more in interest expense compared to the year-earlier period, and that put some pressure on the company's bottom line.

CEO Kevin Stein put the year's results in perspective. "Our commercial aftermarket and defense revenues were both stronger than originally anticipated, partially offset by slightly weaker commercial OEM revenues," Stein said. "The slightly weaker commercial OEM was primarily due to softness in wide-body commercial transport aircraft revenue that we believe is timing related." The CEO went on to say that TransDigm's strength in the business jet and helicopter-related business was encouraging as well.

Can TransDigm keep growing?

TransDigm's vision of the future involves massive growth opportunities. As Nicholas Howley, TransDigm's executive chair, put it, "We were able to allocate approximately $660 million to purchase three aerospace businesses that all met our stringent strategic and value creation requirements. In addition, after our fiscal year end, we announced an agreement to purchase [Esterline Technologies (ESL)] for around $4 billion." The deal will be TransDigm's biggest ever, and the company is confident that the purchase will bring together two complementary businesses with a good fit.

Even on an organic basis, TransDigm is optimistic about its prospects. The company sees low- to mid-single-digit-percentage gains for the commercial OEM segment's sales, and mid- to high-single-digit-percentage increases for the commercial aftermarket and defense categories. Guidance for fiscal 2019 included revenue projections of $4.125 billion to $4.215 billion, and net income of $843 million to $881 million should result in adjusted earnings of $15.92 to $16.60 per share.

TransDigm shareholders celebrated the results, and the stock climbed more than 2% on Tuesday following the report. The huge impact of the Esterline acquisition will inevitably shape TransDigm's performance going forward, but for now, strength in the aerospace sector is helping the company gain altitude.