TransDigm (TDG) Q4 2026 earnings review
TransDigm's aircraft parts sales rise 23%, but debt costs cut profit
TransDigm, a maker of specialized aircraft parts, grew its underlying sales faster again in the fourth quarter, but a heavier debt load caused reported profit to fall. Sales from businesses owned a year ago rose 14% and total sales climbed 23% to $2,988 million, beating what the prior full-year outlook pointed to by our math. However, net interest expense jumped 28%, so reported net income slipped 4% even aschief executive Mike Lisman issued a fiscal 2027 plan calling for 14% sales growth.
| Sales from businesses owned a year ago | +14% up from +13% in Q3; total sales $2,988M (+23%) |
|---|---|
| Profit per share, excluding one-offs | $12.44 +15% from a year ago; reported net income fell 4% |
| Cash operating profit margin (EBITDA As Defined) | 53.0% down 1.2 percentage points on acquisition drag |
| FY27 sales and profit outlook | New: +14% sales profit per share excluding one-offs +15% at the middle of the range |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because accelerating underlying sales and record share buybacks are balanced by rising interest costs and another year of acquisition margin drag. Beating the fourth-quarter sales and margin levels implied by the third-quarter outlook shows that the old plan was cautious, not that the debt burden or lower-margin acquisitions have gone away.
The question now is whether the fiscal 2027 plan for high single-digit growth in airline replacement parts and a 52.0% cash operating margin is another cautious starting point or the start of a real slowdown. Either replacement orders are finally catching down to slower flight traffic and deal dilution is sticking, or management is setting a low bar it will raise as it did three times in 2026. The fourth-quarter channel growth rates on the conference call and the first-quarter outlook revision will settle it.
🐂 Bull Case
Sales at Existing Businesses Keep Accelerating
TransDigm makes specialized aircraft parts and grows both by raising output at its current factories and by buying other parts makers. To see how the core business is performing, investors strip out newly bought companies and look at sales from businesses owned a year ago. That underlying growth rate sped up in every single quarter of fiscal 2026, finishing at 14% in the fourth quarter.
- Fourth-quarter sales from businesses owned a year ago: up 14%, after 7.4% in Q1, 11% in Q2, and 13% in Q3
- Full-year underlying aerospace sales growth: 13%, compared with 11% when non-aerospace products are included
- Fourth-quarter total sales: $2,988 million, beating the $2,901 million to $2,981 million range implied by the prior outlook by our math
Chief executive Mike Lisman said fourth-quarter revenue and cash operating profit "exceeded the high end of our most recent guidance". By our math, the prior full-year plan pointed to a fourth-quarter margin of 52.3%, and the aircraft parts group delivered 53.0%. That beat shows the third-quarter plan was cautious, and it confirms that factory shipments and airline repair orders remained strong through September.
What to watch: the exact fourth-quarter growth rates for commercial plane makers, airline repair, and defense on the conference call. Those figures will show which customer group drove the acceleration to 14%.
Record Buybacks Lower the Share Count
When TransDigm does not pay a special cash dividend, it uses its cash and borrowing capacity to buy back its own stock. The aerospace group spent $943 million in the fourth quarter to repurchase 820 thousand shares at an average price of $1,150, bringing full-year buybacks to a record $2.8 billion at an average price of $1,187 per share.
Those purchases cut the fourth-quarter share count by 2.4% from a year ago, to 56.7 million shares. A smaller share count means each remaining share gets a larger slice of profit, so fourth-quarter profit per share excluding one-offs rose 15% even though total profit excluding one-offs grew 12%. The fiscal 2027 plan assumes the share count stays at 56.7 million for the full year.
What to watch: first-quarter share repurchases in the next earnings release. Further buying below the $1,187 full-year average would lower the share count past the 56.7 million level built into the 2027 plan.
🐻 Bear Case
Interest Costs Turned Sales Growth Into Lower Profit
Lisman said the company enters the new year "with significant liquidity and the financial flexibility to pursue additional M&A and other capital deployment opportunities". TransDigm funds its acquisitions and buybacks primarily with borrowed money, and it issued $3.0 billion of new 6.75% notes due in 2035 during the quarter to pay off $1.8 billion of 2028 notes and keep the rest as cash.
- Total gross debt: $34.8 billion by our math, up 16% from $30.0 billion a year ago
- Fourth-quarter net interest expense: $536 million, up 28% from a year ago and equal to 17.9% of sales by our math
- Fourth-quarter reported net income: $586 million, down 4% from $609 million a year ago
That interest bill is why a 23% jump in fourth-quarter sales produced a 4% drop in reported net income, which TransDigm said reflected "higher interest expense as a result of the increase in TransDigm's year-over-year gross debt balance and higher tax expense". Headline profit per share rose 33% only because a special dividend payment reduced the year-ago figure by $2.75; without that accounting item, profit per share fell 1.6% by our math.
What to watch: quarterly net interest expense against the $2,255 million full-year 2027 plan, which is up another 12% from 2026. Any new debt issue would push interest costs higher and squeeze reported profit again.
New Acquisitions Push Margins Down Again Next Year
TransDigm tracks its profitability using EBITDA As Defined, a cash operating profit measure that strips out interest, taxes, depreciation, stock compensation, and deal costs. Because newly acquired businesses earn lower margins than TransDigm's older units, buying $4.4 billion of companies in fiscal 2026 pulled the company's overall profit margin down even as existing factories improved.
- Fourth-quarter cost of making the products: 41.0% of sales, up 1.3 percentage points from a year ago by our math
- Fourth-quarter selling and administrative overhead: 11.1% of sales, up 0.6 percentage points from a year ago by our math
- Cash operating profit margin: 53.0% in Q4 (down 1.2 points) and 52.7% in FY26, with Outlook set at 52.0% for FY27
The company said fourth-quarter results included "approximately two percentage points of dilution from recent acquisitions", and it closed the $1.07 billion purchase of brazing-alloy maker Prince & Izant right at quarter-end. At the same time, the one-off charges excluded from that margin nearly tripled in the fourth quarter to $147 million, driven by $36 million of deal costs and $27 million of refinancing fees.
What to watch: whether the cash operating profit margin beats the 52.0% full-year 2027 plan over the next two quarters. A reading stuck at 52.0% would confirm that lower-margin acquisitions are offsetting price gains in the core business.
The 2027 Plan Points to Slower Aftermarket Growth
TransDigm sells into three end markets: commercial OEM (parts for new planes being built at Boeing and Airbus), commercial aftermarket (replacement parts for airlines), and defense. Replacement parts carry the highest profit margins, and investors have watched whether airline traffic drops in the Middle East would eventually slow replacement orders after the usual two-quarter lag.
Lisman said the company is "well-positioned for continued growth as we head into our fiscal 2027 across all three of our primary end markets". However, the fiscal 2027 outlook assumes replacement-part sales grow in the high single-digit percentage range, down from the low double-digit outlook in fiscal 2026 and the 17% rate reported in the third quarter. Defense growth is also planned at high single-digits, down from high single-digit to low double-digit.
What to watch: whether management raises the replacement-part growth assumption at the first-quarter or second-quarter report, as it did twice in fiscal 2026. If the high single-digit target holds, the slower airline traffic is reaching orders.
Risks this quarter didn't answer
Five standing concerns and watch items cannot be read from the earnings release alone and depend on the conference call or the annual filing.
- Fourth-quarter sales growth by market channel: the release gives 2027 assumptions but not the Q4 growth rates for commercial plane makers, airline replacement parts, or defense.
- Inclusion of Jet Parts Engineering and Victor Sierra in the channel figures: management committed to fold both April acquisitions into the channel reporting starting with the 2027 outlook.
- Book-to-bill ratios by channel: management cites order bookings as its main forward indicator but has never given the numbers.
- Alternative parts and defense right-to-repair rules: whether cheaper third-party replacement parts or pending military repair laws threaten sole-source pricing.
- Management's free cash flow measure: the release reports operating cash flow of $2,187 million, leaving capital spending and the $2.6 billion free cash flow target for the call.
💲 Other KPIs
Full-year cash from operations rose 7.3% from $2,038 million a year ago, trailing the 17% growth in cash operating profit because cash interest payments rose by $427 million to $1,961 million and working capital tied up $647 million. By our math, fourth-quarter operating cash flow was $496 million, down 2.2% from $507 million a year ago.
Both working-capital lines grew faster than fourth-quarter sales (+22.6%), reflecting recent acquisitions and higher factory output. Inventories — parts and raw materials on hand — rose 29.5% from $2,095 million a year ago, and unpaid customer bills rose 27.0% from $1,617 million.
🔮 Guidance
New. The plan calls for $12,050 million at the middle of the range, or 14.1% growth from fiscal 2026, down from 20% total growth this year as the aerospace group laps last year's acquisitions. In fiscal 2026, management raised its initial sales target three times — by $90 million, $420 million, and $150 million — and finished $707 million above the starting midpoint.
New. The middle of the range is $6,270 million, up 12.7% from fiscal 2026, with the margin stepping down 0.7 percentage points from 52.7% as Prince & Izant and the spring acquisitions dilute the mix for a full year. In fiscal 2026, TransDigm started with a 52.3% margin target, raised it to 52.5%, and delivered 52.7%.
New. The plan puts reported profit at $2,466 million at the middle of the range, up 17.0% after growing just 1.6% in fiscal 2026. Reported profit grows faster than operating profit next year because net interest expense is planned to rise 12.3% to $2,255 million, a much smaller jump than the 27.7% interest increase in fiscal 2026.
New. The middle of the range is $42.48 per share, up 19.6% from $35.51 in fiscal 2026. The outlook assumes 56.7 million shares, down from the 57.6 million full-year 2026 average because of the 2.3 million shares bought back during 2026, and includes a $0.95 per share reduction from option dividend payments.
New. The middle of the range is $47.51 per share, up 14.9% from $41.35 in fiscal 2026, compared with 10.8% growth for the full year just ended. The table adds back $3.05 per share of stock compensation and $0.83 of acquisition costs, down from $1.70 of acquisition costs in fiscal 2026.
❓ Key Questions
What were fourth-quarter growth rates in each market channel?
The earnings release gives fiscal 2027 growth bands for commercial plane makers, airline replacement parts, and defense, but leaves out the fourth-quarter figures. Investors need those numbers to see whether replacement-part demand stayed near the third quarter's 17% pace.
Did the 2027 channel outlook include the April acquisitions?
Management said last quarter that Jet Parts Engineering and Victor Sierra would enter the market-channel reporting with the fiscal 2027 outlook. Will the company also restate the fiscal 2026 channel growth rates on the same basis so investors can compare like with like?
What was full-year free cash flow after capital spending?
Last quarter management raised its full-year free cash flow target to $2.6 billion. The release shows $2,187 million of operating cash flow after $647 million of working-capital use, but does not state capital spending or the final figure for management's free cash flow measure.
How much of the 52.0% margin plan is deal dilution?
The fiscal 2027 outlook puts the cash operating profit margin at 52.0%, down from 52.7% in fiscal 2026 and 53.0% in the fourth quarter. How much of that 0.7-point drop comes from Prince & Izant and the spring deals versus underlying factory margins?