Why Is JetBlue (JBLU) Down 7.9% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for JetBlue Airways (JBLU). Shares have lost about 7.9% in that time frame, underperforming the S&P 500.

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

JetBlue Beats on Q2 Earnings

The company’s bottom line (excluding 1 cent from non-recurring items) came in at 60 cents per share, which outpaced the Zacks Consensus Estimate of 57 cents. Moreover, quarterly earnings increased 57.9% on a year-over-year basis due to its prudent cost management.

Operating revenues totaled $2,105 million, which surpassed the Zacks Consensus Estimate of $2,100.3 million. Moreover, it compared favorably with the year-ago number. Passenger revenues, which accounted for bulk of the top line (96.5%), improved 9.3% in the quarter under review. Other revenues were up 5.3%.

Additionally, this low-cost carrier issued performed well with respect to revenue per available seat mile (RASM: a key measure of unit revenue) in the reported quarter. RASM increased 3.1% in the reported quarter to 13.14 cents. RASM was aided by the holiday calendar placement apart from strong close-in trends.

Capacity, measured in available seat miles, expanded 5.9% year over year. Meanwhile, traffic, measured in revenue passenger miles, grew 5.7% in the reported quarter. Consolidated load factor (percentage of seats filled by passengers) contracted 20 basis points year over year to 86% as traffic growth was outpaced by capacity expansion in the three-month period.


Average fare at JetBlue during the quarter increased 8.3% to $184.24. Yield per passenger mile increased 3.5% year over year to 14.74 cents. Passenger revenue per available seat mile (PRASM) increased 3.3% to 12.68 cents.

In the second quarter, total operating expenses (on a reported basis) declined 10.8% year over year despite higher costs pertaining to salaries, wages and benefits. Average fuel cost per gallon (including fuel taxes) decreased 5.5% year over year to $2.16.

JetBlue’s operating expenses per available seat mile (CASM) declined 15.7% to 11.58 cents. Excluding fuel, the metric increased 1.8% to 8.46 cents mainly due to pilot contract costs

JetBlue exited the quarter with cash and cash equivalents of $461 million compared with $474 million at the end of 2018. Total debt at the end of the second quarter was $1,492 million compared with $1,670 million at the end of 2018.

Outlook

For the third quarter of 2019, JetBlue expects RASM to grow between 0.5% and 3.5% year over year. For the third quarter, the carrier expects capacity to increase between 3% and 5%. The metric is anticipated to improve in the range of 5.5-6.5% for full-year 2019.

Consolidated operating cost per available seat mile, excluding fuel, is expected to increase 0.5-2.5% in the third quarter. For the current year, the metric is projected to increase between 0.5% and 1.5%. The company expects effective tax rate of 26% for full-year 2019.

Third-quarter fuel cost, net of hedges, is anticipated to be $2.18 per gallon. The company is well on track to achieve its 2020 EPS target, which is in the $2.5-$3 range. Total capital expenditures for the third quarter are expected between $285 million and $350 million. The metric is anticipated in the range of $1200-$1,350 million for full-year 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, JetBlue has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 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

JetBlue has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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