ATSG reports solid results after announcing Amazon deal

The first quarter results of ATSG showed solid growth prospects and confirmed positive trends for its financial performance, but a couple of other events drew the attention of investors and market observers in recent weeks.

These were the formation of a partnership with Amazon, and a delay until 2017 for its Chinese joint-venture. Both have impacted its equity valuation.

Revenues for the quarter ended 31 March rose 21% to $177.4m year-on-year, and were up 18% excluding revenues from reimbursed expenses.

This increase included contributions from “five more dry leases of Boeing 767 cargo aircraft with external customers, and expanded air network operations for ATSG’s newest customer, Amazon Fulfillment Services Inc (AFS),” ATSG said on 10 May, when it reported its quarterly trading update.

Pre-tax income stood at $12.1m versus $14.5m in the prior year period, but adjusted pre-tax income, which excludes certain non-cash charges such as pension costs and debt issuance and other costs, rose 13% to $16.1m. ATSG noted that the “higher expenses for scheduled heavy maintenance checks and costs to prepare flight crews and other personnel for expanding airline operations” were “the factors affecting its pre-tax performance”.

Nonetheless, adjusted EBITDA was up 11%, reaching $51.3m – “a first-quarter record,” according to the group.

For the second quarter, however, earnings will reflect a revenue reduction “associated with the amortization of value for warrants issued to Amazon in accordance with the agreements effective in April.” This non-cash amortisation item will also be excluded from ATSG’s calculation of adjusted EBITDA.

Net earnings came in at $8.2m, or $0.13 per diluted share, versus $8.9m, or $0.14 per diluted share one year earlier. ATSG does not expect to pay significant federal income taxes until 2019 at the earliest.

Its two operating divisions, CAM and ACMI, enjoyed a solid performance in the first quarter, but while the latter remains the main revenue driver, with $101m of quarterly sales, growing sales in cargo aircraft management are also promising, up to $51m from $42m one year earlier.

President and chief executive Joe Hete said that “under its key multi-year agreements with global leaders DHL and Amazon, and with an increasing number of our freighters deployed under long-term dry leases, ATSG is on a sustainable, diversified growth trajectory.”

“We project margins to improve in the second half as we complete more dry leases and deploy additional freighters into the Amazon network,” he added.

Source: Transport Intelligence, 25th May 2016

Author: Alessandro Pasetti