Sabre (SABR) Q3 Earnings Top Estimates, Revenues Up Y/Y

Sabre Corporation (NASDAQ:SABR) reported third-quarter 2019 adjusted earnings per share of 27 cents, which decreased 30.8% on a year-over-year basis. However, the figure surpassed the Zacks Consensus Estimate of 24 cents.

Revenues came in at $984 million, up 1.4% from the year-ago quarter. The figure, however, missed the consensus estimate of $992 million.

Growth Travel Network and Hospitality Solutions drove the results. However, macroeconomic headwinds and soft hotel industry bookings hurt the top line.

Revenue Details

Travel Network revenues increased 1.5% year over year to $711 million. However, softer Global Distribution System environment was an overhang on the top line. Increase of 1% in bookings drove results for this segment. Incentive expense per booking also jumped moderately to low-single digits.

Airline Solutions revenues came in at $208 million, down 0.6% from the year-ago quarter, primarily due to 4.2% decrease in AirVision and AirCentre revenues.

SabreSonic revenues rose 2% due to the impact of insolvency of Jet Airways and volume reductions at a certain carrier due to a 737 MAX incident, and the demigration of Pakistan International Airlines, Philippine Airlines, and Bangkok Airlines. A 5.4% year-over-year decline in passengers boarded was also a headwind to SabreSonic revenues.

Hospitality Solutions revenues jumped 7% year over year to $74.8 million, driven by 14.1% growth in central reservation system transactions.

The third quarter marked the seventh consecutive quarter of strong gains in Sabre’s share in the Global Distribution System market. Global share grew 100 basis points (bps). Moreover, bookings grew 6% in North America.

Moreover, Sabre’s SaaS airline solutions gained momentum.

Additionally, Sabre completed the acquisition of low-cost carrier PSS solutions provider Radixx.

Margin Details

Adjusted gross profit came in at $346.4 million, down 8.3% from the year-ago quarter. However, adjusted gross margin expanded 980 bps to 48.7%. Rise in booking contribution margin for the first time in three years was an upside.

Adjusted operating income decreased 26.2% year over year to $133.1 million. This was primarily due to high technology expenses related to the increase in the expensed portion of total technology spends. This was partially offset by strong revenue growth and a fall in headcount-related expenses. Adjusted operating margin of 13.5% fell 440 bps.

Adjusted operating income for the Travel Network fell 12.9% due to impact of shift in capitalization mix.

Adjusted operating income for Airline Solutions decreased 13.5%.

Hospitality Solutions incurred adjusted operating loss.

During the quarter, lodging ground and sea bookings increased 4% year over year. Hotel and car bookings grew high single-digits. Lower-margin rail bookings declined.

Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $473.4 million compared with $396.85 million in the previous quarter.

Cash provided by operating activities increased to $166.7 million from $152 million sequentially.

Free cash flow was $141.8 million for the third quarter compared with $105.7 in the second quarter.

During the quarter, $77.6 million worth of shares were repurchased. Including dividends, Sabre returned $192.8 million to shareholders.

Guidance

Revenues for full-year 2019 are expected to be in the range of $3.97 billion to $4.01 billion. This indicates 3-5% growth. The Zacks Consensus Estimate stands at $3.99 billion.

Adjusted earnings per share are expected to be between 95 cents and $1.02. The Zacks Consensus Estimate stands at $1.03.

Free cash flow is likely to be approximately $455 million. The company expects to return to profitability recovery in 2021.

Zacks Rank and Key Picks

Sabre currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader technology sector are CDW Corporation (NASDAQ:CDW) , Anixter International (NYSE:AXE) and Benefitfocus, Inc. (NASDAQ:BNFT) , each flaunting a Zacks Rank #1.

Long-term earnings growth rate for CDW, Anixter and Benefitfocus is currently projected to be 13.1%, 8% and 20%, respectively.

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