What happened

Shares of Triumph Group (NYSE:TGI) surged Thursday after the company reported better-than-expected earnings. On Friday the stock was falling back to Earth some, down 10% in early trading as investors dig deeper into the challenges the aerospace component manufacturer faces in the quarters to come.

So what

First the good news: Triumph handily beat Wall Street's consensus earnings estimate in its fiscal fourth quarter, and as importantly was able to shed some of the money-losing businesses that have been weighing on results. Triumph in recent years has been plagued by inconsistent results, and the quarter showed positive signs that the company's transformation is taking hold.

An aircraft assembly line.

Image source: Getty Images.

Shares of Triumph have lost nearly 90% of their value over the past five years, and the post-earnings rally was likely a sigh of relief that, despite the challenges commercial aerospace faces due to the COVID-19 pandemic, things are not worse.

That said, there was a lot of caution in the results. Airlines, due to the pandemic, are cutting back on flights, and as they do, demand for aerospace components is likely to fall. That's going to weigh on about 50% of Triumph's business, by revenue.

Triumph is still looking to divest some underperforming units, but given market conditions it is hard to imagine the company gets much, if anything, for those businesses. Meanwhile Triumph's free cash flow in the quarters to come will be hindered by payments made to exit some of the businesses it is shedding, as well as to repay cash advances customer Boeing provided to help its supply chain through the 737 MAX grounding.

Now what

Triumph today is focused on survival, and to the company's credit it has come a long way toward ensuring it will make it through the downturn without a major liquidity crisis.

That said, the next six to eight quarters look brutal as the commercial aerospace business slowly recovers and some of Triumph's most promising military work, including roles on key helicopter programs, goes through low-revenue evaluation and selection phases. Triumph's hard work has eliminated some of the primary reasons for investors to raise the white flag and sell, but it is still hard to see a good reason to buy in right now given the challenges the business faces.