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Spirit (SAVE) Stock Up on Q3 Earnings Beat, Airbus Deal

Zacks Equity Research

Spirit Airlines’ SAVE third-quarter 2019 earnings per share (excluding 10 cents from non-recurring items) of $1.32 surpassed the Zacks Consensus Estimate by 5 cents. However, the bottom line declined 10.2% on a year-over-year basis due to higher costs.

Additionally, in line with its fleet modernization efforts, this low-cost carrier announced that it has inked of a memorandum of understanding (MOU) with Airbus to buy 100 new Airbus A320neo Family jets. Moreover, Spirit has the option to purchase up to 50 more planes under the MOU, which includes Airbus A319, A320 and A321 models. The airline intends to take delivery of these fuel-efficient jets through 2027.

Both earnings beat and the Airbus order pleased investors. Evidently, the stock gained 5.8% in after-hours trading on Oct 23.

Other Q3 Details

Operating revenues of $992 million edged past the Zacks Consensus Estimate of $989 million. The top line also improved 9.7% year over year on the back of a 17.7% expansion in flight volume. Passenger revenues, accounting for bulk (98.1%) of the top line, improved 9.6% year over year as well. Additionally, revenues from other sources increased 13.7%.

Total operating revenue per available seat mile (TRASM) dipped 1.7% in the reported quarter due to the 120-basis point contraction in load factor (% of seats filled by passengers) to 84.8% as traffic growth (9.9%) lagged capacity expansion (11.6%), unfavorable passenger yields (down 0.2%) and the Hurricane Dorian-related adversity. However, excluding Hurricane Dorian’s negative impact, this metric slid roughly 1% in third-quarter 2019.

Adjusted operating expenses increased 13.1% to $858.2 million, mainly due to higher expenses on salaries, wages and benefits plus costs related to passenger re-accommodation. Moreover, cost per available seat miles (CASM) inched up 2.4% in the reported quarter.

Average economic fuel cost per gallon in the reported quarter decreased 11.9% year over year to $2.08. However, CASM excluding operating special items and fuel (adjusted CASM ex-fuel) increased 8.4% year over year. Factors like increased flight cancellations due to foul weather, additional crew costs and expenses related to passenger re-accommodation caused higher adjusted CASM ex-fuel. 

Spirit Airlines, Inc. Price, Consensus and EPS Surprise

 

Spirit Airlines, Inc. Price, Consensus and EPS Surprise

Spirit Airlines, Inc. price-consensus-eps-surprise-chart | Spirit Airlines, Inc. Quote

Outlook

Spirit, carrying a Zacks Rank #5 (Strong Sell), anticipates capacity growth of approximately 16% year over year for the fourth quarter of 2019. The company expects fourth-quarter TRASM to decline in the 4.5-6.5% band.

Economic fuel cost is projected to be $2.09 per gallon. Moreover, an effective tax rate of 24% is envisioned for the fourth quarter. Operating expense per available seat mile (excluding fuel) is predicted to increase in the 3.5-4.5% range.

For 2019, the company expects total capital expenditures to be $407 million.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting third-quarter 2019 earnings reports from key players like SkyWest SKYW, GOL Linhas GOL and Copa Holdings CPA. While SkyWest is scheduled to report third-quarter results on Oct 30, GOL Linhas and Copa Holdings will do so on Oct 31 and Nov 13, respectively.

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