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Factors to Know Ahead of Alaska Air's (ALK) Q1 Earnings

Zacks Equity Research

Alaska Air Group ALK is scheduled to release first-quarter 2019 results after the closing bell on Apr 25. For the quarter, the Zacks Consensus Estimate is 13 cents per share for earnings and $1.87 billion for revenues.

In the last reported quarter, this airline operator surpassed the consensus mark by 2 cents on 6% growth in passenger revenues. However, operating expenses increased significantly in the same period due to a rise in fuel costs.

As far as earnings surprises are concerned, this Seattle, WA-based company is on a firm footing, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters.

Alaska Air Group, Inc. Price and EPS Surprise

Alaska Air Group, Inc. Price and EPS Surprise | Alaska Air Group, Inc. Quote


Investors are keeping their fingers crossed and hoping that Alaska Air will continue to deliver solid performance and surpass earnings estimate this time around as well. However, our model indicates that the carrier might not beat on earnings in the first quarter of 2019.

Let’s delve deeper and find out the factors likely to impact the quarterly results.

We expect upbeat passenger revenues to boost the company’s top line in the soon-to-be-reported quarter. Robust traffic during the spring travel period (which started from Mar 1) should also aid results. The Zacks Consensus Estimate for passenger revenues is pegged at $1,732 million, higher than $1,685 million registered a year ago.

Revenue per available seat mile (RASM) for the first quarter is anticipated in the 12.08-12.10 cents range. The RASM guidance implies an approximately 2.1% increase year over year. However, weak pricing may hurt the top line. The Zacks Consensus Estimate for yield (mainline) is pegged at 12.48 cents, lower than the 12.70 cents reported a year ago.

However, fuel costs are expected to be less of a hindrance in the first quarter than in the final quarter of 2018. The company expects fuel costs to be $2.13 per gallon in the soon to-be-reported quarter. The Zacks Consensus Estimate for the metric is pegged at $2.11 per gallon, much lower than the $2.35 registered in the last reported quarter.  Reduced tax rates are also anticipated to boost the bottom line in the first quarter of 2019.

However, capacity-related woes are worrisome. In fact, load factor (% of seats filled with passengers) has not increased in any of the three months of the first quarter. The Zacks Consensus Estimate for the metric is pegged at 80% for the soon-to-be-reported quarter, lower than the 83% registered in the fourth quarter of 2018.  Capacity overexpansion is the primary reason behind this disappointing performance.

Additionally, operating expenses are likely to be high in the quarter to be reported. With fuel costs moderating, expenses on wages and benefits might push up operating costs. This, in turn, might weigh on the company’s bottom-line performance.

What Does the Zacks Model Say?

Our proven model does not indicate earnings beat for Alaska Air in first-quarter 2019. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Alaska Air has an Earnings ESP of +19.95%. The Most Accurate Estimate is pegged at 2 cents above the Zacks Consensus Estimate.

Zacks Rank: Alaska Air carries a Zacks Rank #5.

The fact that the Zacks Consensus Estimate for first-quarter earnings has been revised downward in excess of 56% over the past 60 days, highlights the negative sentiment surrounding the stock. 

Stocks to Consider

While earnings beat looks uncertain for Alaska Air, here are some companies from the Zacks Transportation sector you may want to consider, which shows that they have the right combination of elements to post earnings beat in their next releases.

SkyWest SKYW has an Earnings ESP of +0.83% and a Zacks Rank of 2. The company will report first-quarter 2019 results on Apr 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

C.H. Robinson CHRW has an Earnings ESP of +0.22% and is a Zacks #3 Ranked player. The company is scheduled to release first-quarter 2019 earnings on Apr 30.

Werner Enterprises WERN has an Earnings ESP of +2.06% and a Zacks Rank #3. The company will announce first-quarter 2019 financial numbers on Apr 25.

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