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Will High Labor Costs Hurt Spirit's (SAVE) Q1 Earnings?

Zacks Equity Research

Spirit Airlines, Inc. SAVE is expected to report first-quarter 2019 earnings numbers on Apr 25, before the market opens.

Last reported quarter, the company came up with in-line earnings but better-than-expected revenues. Also, the top and the bottom lines improved significantly year over year owing to a rise in non-ticket revenues and operating yields.

Let’s see how things are shaping up prior to the announcement.

Factors Likely at Play

Similar to the last few quarters, high labor costs are expected to hamper the company’s bottom-line growth in the first quarter as well. It anticipates non-fuel unit costs to rise approximately 2.5% in the quarter. The Zacks Consensus Estimate for non-fuel unit costs in the first quarter stands at 5.47 cents, higher than 5.33 cents reported in the first quarter of 2018.

Additionally, sluggish unit revenues might hurt the company’s top line in the soon-to-be-reported quarter. Earlier in the month, Spirit trimmed its total revenue per available seat miles (TRASM: a key measure of unit revenues) view as a result of lower-than-expected yields in March and higher capacity due to higher-than-expected completion factor. TRASM is now expected to increase approximately 4% year over year (past view was an increase of 5%) compared with 11.4% rise registered in the fourth quarter of 2018. The Zacks Consensus Estimate for TRASM in the first quarter stands at 8.79 cents, lower than 9.59 cents reported in the fourth quarter of 2018.

However, robust passenger revenues on the back of strong demand for air travel should boost the company’s overall results. Increase in non-ticket revenues are also anticipated to aid results. The consensus mark for non-ticket revenues in the first quarter is pegged at $440 million, up from $418 million reported in the previous quarter.

A low effective tax rate in the quarter should also drive the bottom line. Effective tax rate in the to-be-reported quarter is anticipated to be 22% compared with 24% in the first quarter of 2018.

Spirit Airlines, Inc. Price and EPS Surprise


Spirit Airlines, Inc. Price and EPS Surprise | Spirit Airlines, Inc. Quote

Earnings Whispers

Per our proven model, a company needs to have the right combination of the following two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.

Earnings ESP: Spirit Airlines has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 84 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Spirit Airlines carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide, Inc. CHRW, Werner Enterprises, Inc. WERN and Triton International Limited TRTN as these stocks possess the perfect mix of elements to beat on earnings in the next releases.

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

Werner has an Earnings ESP of +2.06% and is a #3 Ranked player. The company is set to report first-quarter financial figures on Apr 25.

Triton has an Earnings ESP of +2.51% and a Zacks Rank #2 (Buy). The company is scheduled to announce first-quarter results on Apr 30. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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