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Airlines ETF Gains in 1-Month Period Despite Mixed Results

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It’s been close to one month since Delta Air Lines Inc. (DAL - Free Report) kick-started the second-quarter earnings season for the airline space. Overall, the season has been mixed for the industry, with several operators missing revenue estimates. The airline companies belong to a bottom-ranked Zacks industry (bottom 8%). Lets’ delve a little deeper.

Inside Earnings

Delta’s second-quarter earnings (excluding 30 cents from non-recurring items) of $1.77 per share surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also expanded on a year-over-year basis despite high fuel costs. Operating revenues came in at $11,775 million, outpacing the Zacks Consensus Estimate of $11,678.8 million. The top line increased more than 9% from the year-ago figure. Strong demand for air travel boosted revenues.

United Continental Holdings Inc.’s UAL) earnings (excluding 75 cents from non-recurring items) of $3.23 per share surpassed the Zacks Consensus Estimate of $3.07. The bottom line also increased significantly year over year owing to higher revenues. Operating revenues came in at $10,777 million, which outpaced the Zacks Consensus Estimate of $10,702 million. Moreover, the top line was up 7.7% year over year. The company anticipates capacity to expand between 4.5% and 5.5%, while pre-tax margin (adjusted) is estimated between 8% and 10%. Passenger unit revenues are anticipated to increase 4-6% year over year.

American Airlines Group Inc.’s (AAL - Free Report) second-quarter 2018 earnings (excluding 41 cents from non-recurring items) of $1.63 per share surpassed the Zacks Consensus Estimate by 4 cents. Quarterly earnings decreased on a year-over-year basis mainly due to high fuel costs. Revenues of $11,643 million fell short of the Zacks Consensus Estimate of $11,652 million. The top line, however, improved on a year-over-year basis. Strong demand for air travel led to the year-over-year improvement in the top line.

Low-cost carrier Southwest Airlines Co. (LUV - Free Report) reported second-quarter 2018 earnings per share (excluding a penny from non-recurring items) of 1.26, beating the Zacks Consensus Estimate of $1.25. Operating revenues of $5,742 million lagged the Zacks Consensus Estimate of $5,771 million. However, the top line improved year over year.

JetBlue Airways Corporation’s (JBLU - Free Report) second-quarter 2018 earnings per share (excluding 76 cents from non-recurring items) of 38 cents surpassed the Zacks Consensus Estimate of 36 cents. However, the bottom line decreased significantly on a year-over-year basis primarily due to high fuel costs. Total operating revenues of $1,928 million fell short of the Zacks Consensus Estimate of $1,931.2 million. Nevertheless, the top line increased approximately 5% from the year-ago figure.

Alaska Air Group Inc. (ALK - Free Report) reported second-quarter 2018 earnings per share (excluding 10 cents from non-recurring items) of $1.66, which surpassed the Zacks Consensus Estimate of $1.63. Earnings declined due to high fuel costs. Revenues came in at $2,156 million, which fell short of the Zacks Consensus Estimate of $2,174.2 million. However, revenues increased year over year.

ETF in Focus

Since results were mixed, investors having a strong stomach for oil-related risks may go for a basket approach. This approach makes up for company-specific concentration risks as one company’s weakness compensates for another company’s strength (read: Winning and Losing Sectors ETFs Post OPEC Decision).

JETS in Focus

The $98 million-fund holds more than 30 stocks in its portfolio and is concentrated on a few individual securities. United Continental (13.02%), Southwest Airlines (12.74%), Delta Airlines (12.01%) and American Airlines (11.08%) take the first four positions in the fund. Alaska Air and JetBlue hold the seventh and eighth positions in the fund with a 3.88% and 3.68% weight, respectively. The product charges 60 bps in fees (see all industrials ETFs).

 

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