Triumph Group, Inc. (NYSE:TGI) Q4 2018 Earnings Conference Call Transcript
May 10, 2018 • 08:30 am ET
what's offsetting the reductions? If there's more you can do beyond this plan? Yeah. Thanks.
Daniel J. Crowley
Yeah. Okay. Great, Gavin. So I'll start and, Jim, you can join in. So Triumph's margins reflect the mix of programs that we have today and some of our larger programs like -- 747 and Global 7000 and in past G650 were not generating margin. And so overall, company margins have been temporarily depressed. Now as we fulfill our contract obligations on 747 and as we convert Global 7000 from development spending and early production losses to crossover, breakeven and profitability and now with our new contract settlement on G650 all of those headwinds either abate or reverse.
So it's really a phasing issue as it relates to margins. And Triumph is looking forward to the upside of having invested so much in development programs and also continuing to see strong margins out of systems and aftermarket. Jim?
James F. McCabe Jr.
Hey, Gavin. The two things you pointed out are very significant to this, so I'll just remind you this. The amortization of contract liabilities which was about $125 million of non-cash income this year and -- this year being FY18 is going down to $65 million to $75 million next year. So that's part of it. And the other part is pension, and not only -- on slide 16, I have the pension listed, it's going from $72 million down to $61 million. But the margins are reduced because pension is now being reported below operating income.
So it's coming out completely. So it's not just that decline. The whole $72 million is coming out. So those are two big key non-cash drivers to keep an eye on.
Got it. And then on the divestiture strategy, when you took on the Tulsa Gulfstream ops, you were actually giving cash to takeover that business. So now I appreciate that kind of divesting the underperforming businesses will have a meaningful impact on your margin and cash, but I'm just curious if it's now harder to divest those businesses that are either cash losing or have pension liabilities attached. Thanks.
Daniel J. Crowley
So we've seen a strong response to all of the properties that we put up for sale, and they often come from strategic buyers that know how to run those operations, that are prepared to make larger capital investments in those businesses than Triumph has been able to do in the last four or five years. And there's not that many properties out there. So we have not seen an issue in that regard. And we expect that the new owners of these businesses to build on the backlog that exists here and the strong relationships we have with the OEMs.
And there's also international interest in getting a US footprint in markets. So that really hasn't been a challenge. And the capabilities of these operations are quite good in terms of machine assets and talent. So I'm not concerned about that.
Great. Thank you.
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