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Air cargo transportation and logistics provider Air Transport Services Group (NASDAQ:ATSG) missed analysts' expectations in Q2 CY2024, with revenue down 7.7% year on year to $488.4 million. It made a non-GAAP profit of $0.19 per share, down from its profit of $0.57 per share in the same quarter last year.
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Air Transport Services (ATSG) Q2 CY2024 Highlights:
- Revenue: $488.4 million vs analyst estimates of $513.7 million (4.9% miss)
- EPS (non-GAAP): $0.19 vs analyst estimates of $0.16 (18.8% beat)
- EBITDA guidance for the full year is $526 million at the midpoint, above analyst estimates of $517.2 million
- Gross Margin (GAAP): 24.6%, down from 38.8% in the same quarter last year
- EBITDA Margin: 26.7%, down from 29.7% in the same quarter last year
- Free Cash Flow of $91.82 million, up from $11.99 million in the previous quarter
- Market Capitalization: $863.7 million
Air Freight and LogisticsThe growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, Air Transport Services's sales grew at an impressive 11.5% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Air Transport Services's recent history shows its demand slowed significantly as its annualized revenue growth of 1.9% over the last two years is well below its five-year trend. We also note many other Air Freight and Logistics businesses have faced declining sales because of cyclical headwinds. While Air Transport Services grew slower than we'd like, it did perform better than its peers.
Air Transport Services also breaks out the revenue for its most important segments, ACMI Services and Cargo Aircraft Management, which are 69.2% and 21.4% of revenue. Over the last two years, Air Transport Services's ACMI Services revenue (aircraft, crew, maintenance, and insurance) was flat while its Cargo Aircraft Management revenue (aircraft leasing and transport services) averaged 4.1% year-on-year growth.
This quarter, Air Transport Services missed Wall Street's estimates and reported a rather uninspiring 7.7% year-on-year revenue decline, generating $488.4 million of revenue. Looking ahead, Wall Street expects sales to grow 4.2% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Air Transport Services has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.8%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Air Transport Services's annual operating margin decreased by 3.5 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Air Transport Services become more profitable in the future.
This quarter, Air Transport Services generated an operating profit margin of 6.4%, down 6.8 percentage points year on year. Since Air Transport Services's gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased sales, marketing, R&D, and administrative overhead expenses.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Air Transport Services, its EPS declined by 7.5% annually over the last five years while its revenue grew by 11.5%. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of Air Transport Services's earnings can give us a better understanding of its performance. As we mentioned earlier, Air Transport Services's operating margin declined by 3.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Air Transport Services, its two-year annual EPS declines of 37.8% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Air Transport Services reported EPS at $0.19, down from $0.57 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects Air Transport Services to grow its earnings. Analysts are projecting its EPS of $0.86 in the last year to climb by 2.2% to $0.88.
Key Takeaways from Air Transport Services's Q2 Results We were impressed by how significantly Air Transport Services blew past analysts' EPS expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street's estimates. This was a solid quarter. The stock traded up 5.6% to $14 immediately after reporting.
