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Alaska Air (ALK) Down 14.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Alaska Air Group (ALK). Shares have lost about 14.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alaska Air due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Alaska Air Group Beats on Q4 Earnings

Alaska Air Group’s earnings per share of $1.46 beat the Zacks Consensus Estimate by 5 cents. Moreover, the bottom line surged 94.7% year over year on low fuel costs.

Revenues came in at $2,228 million, surpassing the Zacks Consensus Estimate of $2,220.5 million. The top line also increased approximately 8% year over year. Passenger revenues — contributing 92.3% to the top line — were up 8% on a year-over-year basis.

Operating Statistics

Consolidated traffic, measured in revenue passenger miles, rose 3.9% year over year in the reported quarter. Capacity (measured in available seat miles) expanded 3.5%. Load factor (percentage of seats occupied by passengers) improved 40 basis points to 83.7% as traffic growth outpaced capacity expansion in the reported quarter.

Total revenue per available seat mile (RASM: a key measure of unit revenues) increased 4.2% year over year to 13.38 cents in the quarter under discussion. Meanwhile, yield climbed 3.7% to 14.77 cents.

Operating Expenses & Income

In the fourth quarter, total operating expenses (on a reported basis) were down 2% year over year to $1,976 million with expenses on aircraft fuel (including hedging gains and losses) declining 13%. Fuel price (economic) was $2.21 per gallon, down 6% year over year.

Expenses on wages and benefits, however, flared up 14% in the December-end quarter. Operating income increased in excess of 100% from the prior-year quarter’s level to $252 million. Consolidated cost per available seat mile — excluding fuel and special items — inched up 0.7% to 9.01 cents.

Liquidity & Buybacks

At the end of 2019, the company had $ 1,521 million in cash and marketable securities compared with $1,236 million at the end of 2018.

Alaska Air exited the year with long-term debt of $1,264 million compared with $1,617 million at the end of 2018. Adjusted debt-to-capitalization ratio was 41% compared with 47% in December 2018. The carrier repurchased 1,192,820 shares worth roughly $75 million in 2019.

Q1 Outlook

The company envisions capacity to rise approximately 4% year over year in the first quarter of 2020. Additionally, non-fuel unit costs (excluding special items) are projected to be up approximately 3% for the March-end quarter. RASM is projected to increase in the 0.5-3.5% band. Meanwhile, economic fuel cost is projected at $2.21.

2020 Outlook

The company expects capacity for the full year to increase between 3% and 4% from 2019 levels. Non-fuel unit costs (excluding special items) are expected to rise roughly 2%. Meanwhile, capital expenditures are currently anticipated to be approximately $750 million in the current year

Airline traffic, measured in revenue passenger miles, rose 44.2% year over year to 13,554 million in the reported quarter. Capacity or available seat miles increased 41.1% to 15,612 million. Load factor (percentage of seats filled by passengers) increased 190 basis points to 86.8% owing to traffic growth outpacing capacity expansion.

Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) increased 1.3% year over year to 11.57 cents. While total revenue per available seat mile (RASM) declined 0.4% to 13.46 cents in the reported quarter, yield declined 0.8% to 13.33 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -30.88% due to these changes.

VGM Scores

At this time, Alaska Air has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Alaska Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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