JetBlue (JBLU) To Report Q1 Earnings: A Beat In The Offing?

JetBlue Airways Corporation (NASDAQ:JBLU) is scheduled to report first-quarter 2018 results on Apr 24, before the market opens.

In the fourth quarter of 2017, JetBlue’s earnings per share (excluding $1.76 from non-recurring items) of 32 cents, fell short of the Zacks Consensus Estimate of 34 cents. The bottom line also decreased 36% on a year-over-year basis due to high costs. Meanwhile, operating revenues of $1,756 million matched the consensus mark.

However, things are looking up for this low-cost carrier this time around. The positive sentiment surrounding the stock can be made out from the fact that JetBlue has witnessed the Zacks Consensus Estimate for first-quarter earnings being revised upward to the tune of 29.4% over the last 60 days.

Given this backdrop, let’s delve deeper to unearth the factors that are likely to influence the company’s first-quarter results:

We expect JetBlue’s top line to be driven by higher passenger revenues owing to strong demand for air travel. Also, first-quarter revenue per available seat mile (RASM: a key measure of unit revenues) is projected to increase approximately 6.1% year over year (previous guidance expected the metric to grow in the 3.5-5.5% band). Strong demand for air travel contributed to the bullish view. The metric has been boosted to the tune of 2.5 points owing to the timing of Easter in March.

Additionally, lower completion factor due to the increase in flight cancellations drove first-quarter unit revenues to the tune of approximately one point. Lower completion factor implies higher flight cancellations and a reduction in capacity, which in turn leads to increase in unit revenues.

Consequently, JetBlue slashed its projection on capacity growth to 3.3% from the previously anticipated 3.5-5.5%. The trimming of the capacity growth projection is encouraging. The Zacks Consensus Estimate for first-quarter PRASM (consolidated) is pegged at 11.29 cents, higher than 11.28 cents in the fourth quarter of 2017.

Other airline players like American Airlines Group Inc. (NASDAQ:AAL) have also issued improved projections with respect to unit revenues for the first quarter of 2018. Moreover, the new tax law is expected to aid JetBlue’s results significantly. Its debt reduction efforts are impressive as well.

However, we expect JetBlue’s bottom-line growth to be restricted by increased costs (fuel and labor). Fuel cost (economic) is projected to be $2.16 per gallon in the soon-to-be-reported quarter, much higher than the $1.99 reported by the company in the final quarter of 2017. The Zacks Consensus Estimate for first-quarter fuel cost is pegged at $2.13 per gallon, higher than $1.89 in the fourth quarter of 2017.

In fact, oil prices have been on an uptrend lately and were up approximately 8% in the January-March period. As fuel costs account for a significant chunk of expenditures for any airline company, it can easily be concluded that high fuel costs will limit bottom-line growth of carriers in the first quarter and JetBlue is no exception.

Apart from surging oil prices, expenses on the labor front are increasing. This, in turn, is also expected to limit bottom-line growth in the soon-to-be-reported quarter. Non-fuel unit costs are projected to increase between 2% and 4% on a year-over-year basis.

JetBlue Airways Corporation Price and EPS Surprise

JetBlue Airways Corporation Price and EPS Surprise | JetBlue Airways Corporation Quote

What Does Our Model Say

Our quantitative model shows that JetBlue is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP: JetBlue has an Earnings ESP of +1.02%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: JetBlue carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of JetBlue’s Zacks Rank #3 and a positive ESP makes us reasonably confident of an earnings beat.

Stocks That Warrant a Look

Investors interested in the Zacks Airline industry may also consider the following stocks as our model shows they possess the right combination of elements to post an earnings beat in their next releases.

Hawaiian Holdings, Inc. (NASDAQ:HA) has an Earnings ESP of +2.57% and a Zacks Rank #3. The company will release first-quarter 2018 results on Apr 24.

Spirit Airlines, Inc. (NYSE:SAVE) has an Earnings ESP of +2.46% and a Zacks Rank #3. The company will release first-quarter 2018 results on Apr 26.

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