Air Transport Services Group (NASDAQ: ATSG) reported Q3 EPS of $0.31, $0.05 better than the analyst estimate of $0.26. Revenue for the quarter came in at $366.07 million versus the consensus estimate of $339.84 million.

Joe Hete, Chief Executive Officer of ATSG, said, "Demand for our aircraft and flight operations continued to accelerate in the third quarter, pointing toward a strong peak period of non-payload-sensitive flying for our air express network customers as we deploy more 767 freighters. Flight operations for the U.S. Department of Defense and passenger charter customers were also strong."

Outlook

ATSG continues to project that its Adjusted EBITDA will increase to $450 million in 2019 from $312 million in 2018.

Peak-season flight schedules for ATSG's scheduled express-package services will be higher in the fourth quarter than previously forecast, largely due to strong e-commerce demand. As a result, costs to prepare for and support that demand will be greater than previously anticipated. Additionally, fourth-quarter aircraft lease revenues may be impacted by the timing of lease start-ups and transitioning delays.

2019 capital expenditures, principally to purchase and modify Boeing 767 aircraft for freighter deployment, are now projected to be approximately $460 million, down from $475 million previously projected. Five 767-300s are expected to be in or awaiting cargo conversion at year-end 2019.

We anticipate ten lease deployments in 2020, including commitments of four to Amazon and one to UPS. The demand for Boeing 767 freighters remains very strong and ATSG is negotiating with multiple customers seeking to lease the remaining aircraft. Goals for 2020 also include mid-year approval of our application for a Supplemental Type Certificate for our Airbus A321 passenger-to-freighter conversion program.

Hete noted that ATSG expects to continue investing in 767 aircraft in the near term, based on known and anticipated requirements of customers relying even more on air express networks to speed fulfillment, and those customers' preference for ATSG's customized turnkey solutions and superior service performance.

"While trade and tariff issues have impacted the general cargo market," he said, "demand for our mid-size freighters remains very strong, driven by the expansion of regional air express networks and growth in e-commerce. Looking forward, the aircraft and other investments we are making will drive even higher cash flows into an already strong cash-generating business. We expect lower capital expenditures in the next few years with decreasing debt leverage and full availability of capital allocation options to increase shareholder returns."

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