SkyWest (SKYW) Q3 Earnings Surpass Estimates, Surge Y/Y

SkyWest, Inc. SKYW delivered better-than-expected results in the third quarter of 2018. The company’s earnings of $1.57 per share, surpassed the Zacks Consensus Estimate of $1.41. Also, the bottom line improved 55.5% on a year-over-year basis. A lower effective tax rate boosted the same.

Quarterly revenues came in at $829.3 million, beating the Zacks Consensus Estimate of $826.4 million. Moreover, the top line benefited from the company’s improved fleet mix.

In fact, SkyWest’s efforts to modernize its fleet and streamline operations are very impressive. The company aims to reduce the 50-seat jets from its fleet and add new E175 aircraft. To this end, this St. George, Utah-based carrier reported a 4.7% decrease in block hours (a measure of aircraft utilization) during the third quarter of 2018. While departures declined 7.3%, load factor (% of seats filled by passengers) expanded 220 basis points to 82.2%.

SkyWest, Inc. Price, Consensus and EPS Surprise

 

SkyWest, Inc. Price, Consensus and EPS Surprise | SkyWest, Inc. Quote

In a bid to upgrade its fleet, the carrier has added 34 new E175 planes and one CRJ900 aircraft to its fleet and removed multiple unproductive/less-profitable aircraft from its fleet since the third quarter of 2017. The company is set to take delivery of eight new E175 aircraft during the fourth quarter of 2018. By the end of the current year, SkyWest’s fleet is expected to consist of 146 E175 aircraft.

The effective tax rate in the quarter under review declined to 24.5% from 38% a year ago, mainly owing to the new tax law (Tax Cuts and Jobs Act). Tax rate is estimated to be approximately 25% in the final quarter of 2018. Operating expenses slid 1.3% to $691.35 million. Lower aircraft maintenance and repair costs contributed to this decline. Average fuel cost per gallon, however, surged 30.6% year over year to $2.69.

This Zacks Rank #3 (Hold) company exited the reported quarter with cash and marketable securities of $705 million, up 8.6% sequentially. Total debt increased to $3.1 billion from $3 billion in the second quarter of 2018. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

During third-quarter earnings call, SkyWest management’s bullish comments on free cash flow and earnings growth for the next two years pleased investors. As a result, the stock rallied more than 11% since the earnings release. The company said that there was a "strong opportunity" for earnings growth in 2019 and 2020 on the back of an improved fleet mix and other factors. It also added that the company was confident of a solid free cash flow generation in the next couple of years.

Upcoming Releases

Investors interested in the broader Zacks Transportation sector are keenly awaiting third-quarter earnings reports from key players, namely Expeditors International of Washington, Inc. EXPD, Triton International Limited TRTN and Air Lease Corporation AL. While Triton International will release third-quarter results on Nov 2, Expeditors and Air Lease will announce the same on Nov 6 and Nov 8, respectively.

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