JetBlue Is Flying With Too Much Baggage
The technical case for the discount airline is not strong — but it is stronger than the fundamental story.
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On Tuesday morning, discount air carrier JetBlue Airways JBLU released its first-quarter financial report. The results, while not good, were better than expected. Yet the stock is selling off. JBLU is among the most active and worst-performing stocks in the S&P SmallCap 600 Tuesday.
For the three-month period ended March 31, JetBlue posted an adjusted loss per share of $0.43 (GAAP loss per share: $2.11) on revenue of $2.209B. The adjusted earnings number beat Wall Street expectations by about forty cents. The revenue print landed in-line with expectations while reflecting a year-over-year contraction of 5.1%.
The lion's share of the adjustment made was made for what JetBlue calls "special items." For the three months involved in the reporting of these results, special items are described as union contract costs and costs related to the now aborted planned acquisition of Spirit Airlines SAVE. Other than where the company has to define "special items," Spirit Airlines is not mentioned in the press release.
Operations
As operating revenues (same as total revenue) contracted 5.1% to $2.209B, operating expenses increased 14% to $2.928B, despite a 20% reduction in fuel expenses, which dropped from JetBlue's largest operating expense a year ago to second place as salaries and wages increased 11%. This left a GAAP operating loss of $719M, versus the year-ago comp of -$242M as GAAP operating margin deteriorated from -10.4% to -32.6%.
The company makes sure that you know that though operating expenses increased by 14%, that operating expenses excluding those special items actually decreased 3.7% year over year. Unadjusted, operating expenses per available seat mile increased 17.1%. Once we account for interest, gains/losses on investments and taxes, JetBlue's net loss ends up at $716M versus a loss of $192M a year ago. This works out to a GAAP loss per share of $2.11, versus a loss per share of $0.58 for the same period last year.
Guidance
For the current quarter, JetBlue sees available seat miles decreasing between 2% to 5%, while revenue contracts between 6.5% and 10.5%. Wall Street had been expecting to see revenue contraction of less than 4%, so this guidance comes as quite a blow.
For the full year, JetBlue sees available seat miles down low single digits in percentage terms. Revenue is also seen down low single digits. Wall Street, for the most part, had been expecting revenue growth of 6% or so for the full year. This guidance is far more negative than Wall Street had been positioned for.
Fundamentals
JetBlue has, as far as I can tell, not yet published or released a statement of cash flows or an updated balance sheet, unless I'm just not finding it. The information is not in the press release, nor can I find it under the materials released or filings listed on its website under investor relations. You all know how much I love that.
My Thoughts
I started this piece with an open mind. I can certainly see why JetBlue did not proceed with the purchase of another troubled airline. I don't like not being able to look at the key statements that should be part of every earnings release. That troubles me. Revenue expected to decrease far more quickly than expected troubles me.
There may come a time and place to buy this name. I don't see a fundamental case for making an investment on this dip.
Technically speaking, the stock has broken below base support at the $6.50 level and is now feeling around for support at the 38.2% Fibonacci retracement level of the late October through mid-February rally. Just below this level, we have to 200-day simple moving average (SMA), so there is a technical case for support to build here. The gap created back in February has now filed, so that is another positive.
I am not going to buy any of these shares today. The technical case is not strong, but it is stronger than the fundamental story. Readers should be aware that roughly 18% of the entire float is being held in short positions.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
