Atlas Air Worldwide Holdings (AAWW) Tops Q2 EPS by 20c, Beats on Revenues; Raises FY Outlook

Atlas Air Worldwide Holdings (NASDAQ: AAWW) reported Q2 EPS of $1.09, $0.20 better than the analyst estimate of $0.89. Revenue for the quarter came in at $517.37 million versus the consensus estimate of $498.86 million.

Outlook

• We are increasing our outlook for the full year.
• We expect our adjusted income from continuing operations, net of taxes, in 2017 to grow by a percentage in the mid-teens compared with 2016 adjusted income of $114.3 million, approximately double the midpoint of our prior view of mid-single-digit to low-double-digit percentage growth.
• In addition, we expect adjusted income from continuing operations, net of taxes, in the third quarter of 2017 to increase by a percentage in the low- to mid-teens compared with our third-quarter 2016 adjusted income of $27.4 million.
• Our view reflects solid demand from our customers, the benefits we expect from our growth initiatives, and the steps we have taken to align our business with the faster-growing express and e-commerce markets.
• We believe the current demand, including our new services for Asiana Cargo, Cathay Pacific Cargo, FedEx, Hong Kong Air Cargo, Nippon Cargo Airlines and Yangtze River Airlines, the initial accretion from our Amazon operations, and the first full year of contribution from Southern Air provide a strong foundation for earnings growth.
• Given the inherent seasonality of airfreight demand, we anticipate that results in 2017 will reflect historical patterns, with more than 70% of our adjusted income occurring in the second half.
• For the full year, we expect total block hours to increase approximately 20% compared with 2016, with more than 75% of our hours in ACMI and the balance in Charter.
• Aircraft maintenance expense in 2017 should total approximately $255 million, and depreciation and amortization is expected to total approximately $170 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $65 to $75 million, mainly for parts and components for our fleet.
• We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, the effects of outstanding warrants and other items that could be material to our reported results.

Second-Quarter Results

• Higher ACMI contribution in the second quarter of 2017 was primarily driven by an increase in flying, partially offset by higher heavy maintenance costs. Segment revenue growth benefited from an increase in block-hour volumes, reflecting greater 767 and 747-400 CMI flying as well as higher aircraft utilization. Average rates reflected the growth in 767 and 747-400 CMI flying.
• Higher Charter segment contribution during the period was primarily due to improved commercial cargo yields, lower costs related to crew training, and an increase in commercial and military demand. These impacts were partially offset by higher heavy maintenance costs and lower rates paid by the military. Segment revenue growth was driven by an increase in block-hour volumes and average rates.
• In Dry Leasing, higher revenue and segment contribution were primarily driven by the placement of six 767-300 converted freighter aircraft with Amazon between August 2016 and June 2017. Segment contribution also benefited from a reduction in interest expense due to the scheduled repayment of debt related to dry leased 777 aircraft in our portfolio.
• Higher unallocated income and expenses in the second quarter of 2017 primarily reflected an increase in unallocated interest expense, growth initiatives, and amortization of a customer incentive asset, partially offset by an accrual for legal matters in the year-ago period.
• Both reported and adjusted income from continuing operations in the second quarter of 2017 included a $2.7 million, or $0.10 per diluted share, benefit related to the timing of heavy maintenance that has moved to the third quarter of 2017 from the second quarter.
• Reported earnings in the second quarter also included an effective income tax rate of 21.6%, due mainly to nontaxable changes in the value of outstanding warrants and our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S. On an adjusted basis, our results reflected an effective income tax rate of 29.4%.

For earnings history and earnings-related data on Atlas Air Worldwide Holdings (AAWW) click here.

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