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JetBlue (JBLU) Down 3.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for JetBlue Airways (JBLU). Shares have lost about 3.5% 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 Q1 Earnings

The company   reported better-than-expected earnings and revenues in the first quarter of 2019. The company’s bottom line (excluding 2 cents from non-recurring items) came in at 16 cents per share, which outpaced the Zacks Consensus Estimate of 12 cents. However, quarterly earnings declined on a year-over-year basis due to high costs.

Operating revenues totaled $1,871 million, which surpassed the Zacks Consensus Estimate of $1,865.6 million. Moreover, it compared favorably with the year-ago number. Passenger revenues, which accounted for bulk of the top line (96.3%), improved 6.5% in the quarter under review. Other revenues were up 11.8%.

Additionally, this low-cost carrier issued an encouraging projection with respect to revenue per available seat mile (RASM: a key measure of unit revenue). For the second quarter, JetBlue expects RASM to grow between 1% and 4% year over year.  Placement of Easter/Passover holiday in April is expected to positively impact the metric to the tune of 2.25 points. RASM had declined 3.1% to 12.12 cents in the reported quarter.

Other Details

Capacity, measured in available seat miles, expanded 10.1% year over year. Meanwhile, traffic, measured in revenue passenger miles, grew 7.3% in the reported quarter. Consolidated load factor (percentage of seats filled by passengers) contracted 210 basis points year over year to 82.5% as traffic growth was outpaced by capacity expansion in the three-month period.

Average fare at JetBlue during the quarter increased 3.5% to $177.24. Yield per passenger mile inched down 0.7% year over year to 14.15 cents. Passenger revenue per available seat mile (PRASM) decreased 3.2% to 11.67 cents.

In the first quarter, total operating expenses (on a reported basis) rose 10.2% year over year mainly due to higher costs pertaining to salaries, wages and benefits. Average fuel cost per gallon (including fuel taxes) decreased 2% year over year to $2.05.

Moreover, JetBlue’s operating expenses per available seat mile (CASM) inched up 0.1% to 11.63 cents. Excluding fuel, the metric increased 0.9% to 8.66 cents.

JetBlue exited the quarter with cash and cash equivalents of $464 million compared with $474 million at the end of 2018. Total debt at the end of the first quarter was $1,539 million compared with $1, 670 million at the end of 2018.



Outlook

For the second quarter of 2019, the carrier expects capacity to increase between 4.5% and 6.5%. The metric is anticipated to improve in the range of 4.5-6.5% for 2019.

Consolidated operating cost per available seat mile, excluding fuel, is expected to increase 1.5-3.5% in the second quarter. For the current year, the metric is still projected to either remain flat or increase up to 2%.

Second-quarter fuel cost, net of hedges, is anticipated to be $2.21 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 second quarter are expected between $330 million and $395 million. The metric is anticipated  in the range of $1200-$1400 million for 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, JetBlue has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, JetBlue has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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