TDG - Transdigm

[Liberty]

And here comes the $24 special dividend:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2211981

[flesh]

Would you help me understand why a company with so much debt would pay such a large dividend and why as a shareholder it doesn't concern you (other than getting a big divi)?

 

 

[Liberty]

Would you help me understand why a company with so much debt would pay such a large dividend and why as a shareholder it doesn't concern you (other than getting a big divi)?

 

For all the same reasons that TDG has done well since 1993.

 

I'm not trying to be glib. I mean that if you study the reasons why the company has done well, it explains why they can support a lot of debt and why they've been doing these returns of capital periodically.

[Liberty]

Fiscal Q4:

 

http://www.transdigm.com/mobile.view?c=196053&v=203&d=1&id=2222005

 

Fourth quarter net sales of $875.2 million, up 8.1% from $809.8 million;

Fourth quarter net income of $154.7 million, up 9.2% from $141.7 million;

Fourth quarter earnings per share of $2.77, up 10.8% from $2.50;

Fourth quarter EBITDA As Defined of $423.3 million, up 16.6% from $363.0 million;

Fourth quarter adjusted earnings per share of $3.29, up 16.3% from $2.83;

Fiscal 2016 net sales of $3,171.4 million, up 17.2% from $2,707.1 million;

Fiscal 2016 net income of $586.4 million, up 31.1% from $447.2 million;

Fiscal 2016 earnings per share of $10.39, up 32.5% from $7.84;

Fiscal 2016 EBITDA As Defined of $1,495.2 million, up 21.2% from $1,233.7 million; and

Fiscal 2016 adjusted earnings per share of $11.49, up 27.5% from $9.01.

[Shooter MacGavin]

just recently started kicking the tires on this name so I don't know it well.  Looking at it as a LONG.  Anyone been following the story for a while?  Do you get nervous with their acquire and fire culture?  It seems from their presentations that they make no bones about letting people go to make numbers.  I looked on glassdoor and their employees kind of confirm this.  Maybe that makes good business sense..I don't know.  The returns speak for themselves.  But aggressive cultures always make me a bit uneasy (Valeant anyone?).  Anyone  who's followed them for a while have any thoughts on their culture/their approach to acquisitions?  Thank you for your input.

 

 

[Jurgis]

just recently started kicking the tires on this name so I don't know it well.  Looking at it as a LONG.  Anyone been following the story for a while?  Do you get nervous with their acquire and fire culture?  It seems from their presentations that they make no bones about letting people go to make numbers.  I looked on glassdoor and their employees kind of confirm this.  Maybe that makes good business sense..I don't know.  The returns speak for themselves.  But aggressive cultures always make me a bit uneasy (Valeant anyone?).  Anyone  who's followed them for a while have any thoughts on their culture/their approach to acquisitions?  Thank you for your input.

 

I think you raise a valid issue. There is a risk in having levered balance sheet + possibly safety critical components + drive for numbers. If something leads to failure(s) with losses of lives, this could be in trouble.

 

OTOH, they might have enough of safety culture for this not to happen. I don't know. I doubt this can be easily evaluated except for backward looking "it hasn't happened yet".

[Shooter MacGavin]

that's a valid point.  I guess I was thinking more that if business unit management was constantly under pressure to make numbers, then they may behave in such a way. If not aggressive accounting (because you can catch that in the cash flow eventually) then making short term decisions at the expense of long term profitability for example.  Firing talent, and then not having resources to innovate..that kind of thing.

 

I guess in this case, the record is so long, so their strategy is battle tested, but it still makes me nervous.  Admittedly, I don't know enough about them yet. 

[Astrea]

I've found it a good exercise to print out all the glassdoor reviews of Valeant pre-dating Oct 2015 and its unravelling. It is my benchmark for a sewer. If you see similar patterns in other companies then I'd re-double on my due diligence. There will always be disgruntled employees, particularly in companies that run very lean operations but key is to work out whether they're just super efficient (and not everyone's "cup of tea") or whether they are cutting dangerous corners.

 

Some red flag quotes from the VRX reviews:

 

"Management is horrible"

"Toxic environment"

"What a disaster this company [...] they couldn't care less about employees and they care even less about patients"

"Vipers"

"CEO is money grubber"

"This company will soon implode"

"There is no saving this management"

"People trying to claw their way ahead stepping on others"

"Lack of accountability"

"No sense of long term or advancement in R&D"

"Very unstable"

"Hard time finding people to trust, my direct manager seems like a snake"

"Scorched earth approach to acquisitions is not sustainable"

"Nasty, nasty"

"this company and its leadership have not redeeming qualities"

"vampire company that destroys value"

"big impersonal, chaotic machine"

"Horrible culture"

"Advice to management: close your doors"

"don't believe in R&D, growth through acquisitions... for how long?"

"horrible leadership, people are warm bodies and talent is completely unimportant. Highly unethical company!!"

"company's focus on short term growth and will hurt the potential for sustainable growth"

"Utterly ruthless"

"Worst company I have ever worked for in my 12 years in the Aesthetic industry [...] they have no integrity or moral values" 

[no_free_lunch]

To be fair though, you need to look at the comments on other successful rollups.  I wonder what people at malone companies think?

[Shooter MacGavin]

I've found it a good exercise to print out all the glassdoor reviews of Valeant pre-dating Oct 2015 and its unravelling. It is my benchmark for a sewer. If you see similar patterns in other companies then I'd re-double on my due diligence. There will always be disgruntled employees, particularly in companies that run very lean operations but key is to work out whether they're just super efficient (and not everyone's "cup of tea") or whether they are cutting dangerous corners.

 

Some red flag quotes from the VRX reviews:

 

"Management is horrible"

"Toxic environment"

"What a disaster this company [...] they couldn't care less about employees and they care even less about patients"

"Vipers"

"CEO is money grubber"

"This company will soon implode"

"There is no saving this management"

"People trying to claw their way ahead stepping on others"

"Lack of accountability"

"No sense of long term or advancement in R&D"

"Very unstable"

"Hard time finding people to trust, my direct manager seems like a snake"

"Scorched earth approach to acquisitions is not sustainable"

"Nasty, nasty"

"this company and its leadership have not redeeming qualities"

"vampire company that destroys value"

"big impersonal, chaotic machine"

"Horrible culture"

"Advice to management: close your doors"

"don't believe in R&D, growth through acquisitions... for how long?"

"horrible leadership, people are warm bodies and talent is completely unimportant. Highly unethical company!!"

"company's focus on short term growth and will hurt the potential for sustainable growth"

"Utterly ruthless"

"Worst company I have ever worked for in my 12 years in the Aesthetic industry [...] they have no integrity or moral values"

 

Thank you so much for compiling this.  It seems like, from the few reviews I was able to discern of TDG, and the overall approval of the CEO, that Transdigm doesn't get great grades.  It's a data point with its selection biases and other flaws, but definitely worth checking out. 

 

To no_free_lunch, from the Malone companies I follow, I don't believe they are so aggressive with hiring and firing (talking about cable acquisitions under Global and Charter - maybe they were more aggressive during TCI days).  The biggest gains on content distribution acquisitions comes from squeezing programmers by virtue of having more subs,  and fixed capex/equipment costs spread over a larger sub base...

[Astrea]

One red flag quote from the TDG reviews:

 

"They only care about money not people's lives on a commercial or even civilian business plane. The greed is so self infused they don't realize they are going to kill people flying."

 

[Shooter MacGavin]

thank you. 

 

one has to obviously consider the n=1 nature of that review and as previously stated, the self-selecting nature of unhappy people posting online. Even so, there are a decent number of disgruntled employees at TDG and a glassdoor review of 1.6 stars for the CEO (only 11 reviews), which is a little bit of a red flag.  I guess I'm going to proceed with caution, keep an eye on this one as a long but maybe look elsewhere for now. I really like the business model but management and culture is a big deal in my opinion.  There are some other acquisitive companies that better ratings on glassdoor.    Thanks for the feedback.

[cmlber]

thank you. 

 

one has to obviously consider the n=1 nature of that review and as previously stated, the self-selecting nature of unhappy people posting online. Even so, there are a decent number of disgruntled employees at TDG and a glassdoor review of 1.6 stars for the CEO (only 11 reviews), which is a little bit of a red flag.  I guess I'm going to proceed with caution, keep an eye on this one as a long but maybe look elsewhere for now. I really like the business model but management and culture is a big deal in my opinion.  There are some other acquisitive companies that better ratings on glassdoor.    Thanks for the feedback.

 

TDG is very open about their business strategy.  Buy companies running with too much SG&A who don't utilize their pricing power, fire most of the employees, raise prices, rinse and repeat.  It's not surprising that the bulk of the 11 reviews on glassdoor for a company with that strategy would be negative.

 

Ironically, if you look at their subsidiaries on glassdoor, the reviews are average, around 3 stars.  One of them even referenced how small the company is (as a positive).  The 11 people posting on glassdoor probably found out who Nick Howley was because they got let go and were told it was because they were acquired by Transdigm so they Googled the company. 

[SlowAppreciation]

just recently started kicking the tires on this name so I don't know it well.  Looking at it as a LONG.  Anyone been following the story for a while?  Do you get nervous with their acquire and fire culture?  It seems from their presentations that they make no bones about letting people go to make numbers.  I looked on glassdoor and their employees kind of confirm this.  Maybe that makes good business sense..I don't know.  The returns speak for themselves.  But aggressive cultures always make me a bit uneasy (Valeant anyone?).  Anyone  who's followed them for a while have any thoughts on their culture/their approach to acquisitions?  Thank you for your input.

 

Funny you say this, as I've been doing some work on TDG the past week and I actually highlighted the "Employees" section of their 10-k as it seemed very lukewarm to me:

 

TDG:

....We consider our relationship with our employees generally to be satisfactory.

 

So I then went to Glassdoor and came across the same reviews you posted. Who knows if it means anything, but it did catch my attention. For what it's worth, here's what a few companies I've been researching say in their 10-k about their employee relations:

 

FAST:

 

None of our employees is subject to a collective bargaining agreement and we have experienced no work stoppages. We believe our employee relations are good.

 

TTC:

 

The total number of employees as of October 31, 2016 was 6,329. We consider our employee relations to be good.

 

JBT:

 

We maintain good employee relations and have successfully concluded all of our recent negotiations without a work stoppage. However, we cannot predict the outcome of future contract negotiations.

 

Liberty Global:

We believe that our employee relations are good.

[AzCactus]

just recently started kicking the tires on this name so I don't know it well.  Looking at it as a LONG.  Anyone been following the story for a while?  Do you get nervous with their acquire and fire culture?  It seems from their presentations that they make no bones about letting people go to make numbers.  I looked on glassdoor and their employees kind of confirm this.  Maybe that makes good business sense..I don't know.  The returns speak for themselves.  But aggressive cultures always make me a bit uneasy (Valeant anyone?).  Anyone  who's followed them for a while have any thoughts on their culture/their approach to acquisitions?  Thank you for your input.

 

Funny you say this, as I've been doing some work on TDG the past week and I actually highlighted the "Employees" section of their 10-k as it seemed very lukewarm to me:

 

TDG:

....We consider our relationship with our employees generally to be satisfactory.

 

So I then went to Glassdoor and came across the same reviews you posted. Who knows if it means anything, but it did catch my attention. For what it's worth, here's what a few companies I've been researching say in their 10-k about their employee relations:

 

FAST:

 

None of our employees is subject to a collective bargaining agreement and we have experienced no work stoppages. We believe our employee relations are good.

 

TTC:

 

The total number of employees as of October 31, 2016 was 6,329. We consider our employee relations to be good.

 

JBT:

 

We maintain good employee relations and have successfully concluded all of our recent negotiations without a work stoppage. However, we cannot predict the outcome of future contract negotiations.

 

Liberty Global:

We believe that our employee relations are good.

 

I really wouldn't expect a company to say something to the contrary here. 

[SlowAppreciation]

Well that's my point. TDG DID say something different from any other 10k I've read as far as I can remember.

[Guest Schwab711]

TDG has used the same wording since at least 2006. I searched EDGAR and at least Ford, Toyota, American Tower, and Seritage use identical wording.

[cmlber]

Well that's my point. TDG DID say something different from any other 10k I've read as far as I can remember.

 

Go on Thesaurus.com and type in "good," "satisfactory" is a synonym...

[SlowAppreciation]

Well that's my point. TDG DID say something different from any other 10k I've read as far as I can remember.

 

Go on Thesaurus.com and type in "good," "satisfactory" is a synonym...

 

Like I said, probably didn't mean anything but it just read more cautiously than other 10ks.

 

And yes, it's a synonym but they are not of the same degree. I'd rather receive a "good" grade on a test than a "satisfactory" one

[Astrea]

I agree, these are heavily lawyered documents. May seem template but there are nuances. No alarm bells though with the use of satisfactory.

[LongHaul]

great work on the 10-K employee relations catch and the Glassdoor comments.  If you are serious, check out TDG subsidiary Glassdoor reviews.

 

I don't like TDG at all.  The Glassdoor reviews are the tip of the iceberg in my opinion.  I think mgmt is very short term oriented and jack up prices and cut expenses for short term gains. 

 

2015 TDG 10-K Notes

• No proforma sales growth in 2014, 2015 10-K, say immaterial

• But acquisitions added 15% to sales in 2014 and 11% in 2015 so were very material, odd perhaps on purpose hiding organic revenue growth.

 

You know what other company had short term oriented mgmt, lots of deals, jacked up prices and horrible Glassdoor reviews where organic growth was purposely unclear?

 

I talked to one guy who ran the aftermarket segment of an aerospace supplier.  He said that TDG had approached him to hire him and he said no.  He didn't think their business model was sustainable. 

 

Think about this from the perspective of Boeing or Airbus if TDG is overcharging their customers in the aftermarket.

 

If I was a huge giant and there was a small leech on me I might just ignore it.  But if it got big enough I would burn it off. 

[BraveChieftain]

They give very good disclosure on organic revenue. They say what $ acquisitions contributed and what $ was organic.

[hooplaer23]

My impression is also that TDG's price increases, while important, are much more modest than some of the 5x-20x price increases that Valeant would implement following acquisitions.  Would be interested to know if I am mistaken here. 

[Liberty]

Andrew Left has a short report on TDG:

 

http://www.citronresearch.com/wp-content/uploads/2017/01/TDG-final-a.pdf

[thefatbaboon]

Andrew Left has a short report on TDG:

 

http://www.citronresearch.com/wp-content/uploads/2017/01/TDG-final-a.pdf

 

Interesting. Although not sure this one is going to work so easily for the short sellers.  Transdigm seems too obscure for the mainstream media/politicians to have anything more than a passing interest.  And surely it will take more than passing media/political attention attention to really reinvent the way things get specced and spared for aircraft.  Without that being overhauled its not so easy to shift transdigm products out of the fleet or hammer prices the way the PBMs did to Valeant.

 

obviously just my 2 cents.