The air cargo services provider reported a loss per diluted share of $0.26 in second quarter 2016 compared with a $1.13 per share gain in the same 2015 period due to unrealized gains related to vested warrants granted to e-commerce giant Amazon.com.
Atlas Air Worldwide Holdings Inc. reported a loss per diluted share of $0.26 in second quarter 2016 compared with a $1.13 per share gain in the same 2015 period, according to the company’s most recent financial statements.
The air cargo craft operator and outsourced services provider said earnings for the quarter were negatively impacted by Atlas’ long-term deal for the leasing and operation of 20 B767-300 freighters for e-commerce giant Amazon.com Inc.
Under the agreements, Atlas Air operates the converted freighters for Amazon on a crew, maintenance and insurance (CMI) basis on a seven-year term and provides dry leasing through its Titan Aviation leasing unit on a 10-year term.
Amazon was also granted vested warrants to purchase up to 20 percent (after the issuance) of Atlas Air Worldwide’s common shares for $37.50 per share over a period of five years, and additional warrants to purchase up to another 10 percent over seven years at the same exercise price.
In addition to transaction related expenses, Atlas Air during second quarter 2016 recorded a liability related to the Amazon warrants in the form of unrealized gains because the stock price exceeded the predetermined strike price of the warrants. As a result, the company reported an unrealized gain of $26.5 million and a tax expense of $8.7 million, generating a loss of $0.26 per diluted share on income from continuing operations of $20.9 million.
Net income stood at $20.6 million for the quarter on $443.3 million in revenues, declines of 27.5 percent and 2.8 percent, respectively, compared with second quarter 2015.
For the first six months of the year, Atlas Air’s net income plummeted 63.5 percent year-over-year to $21 million (equal to a loss of $0.24 per diluted share) on revenues that fell 4.3 percent to $861.9 million.
Atlas Air said it now expects full-year adjusted earnings per share (EPS) from continuing operations to be lower than adjusted EPS in 2015 by a high single-digit percentage due to startup expenses and the issuance of warrants related to the Amazon deal. The projection also reflects anticipated accretion from Southern Air Holdings, which the company purchased for $110 million in April.
“The second quarter was one of the most important in the company’s history,” Atlas Air President and CEO William J. Flynn said of the results. “We acquired Southern Air and added two new operating platforms. And we agreed with Amazon to lease and operate 20 B767-300s.
“We believe strongly in the future of airfreight, especially in the future of the express and e-commerce sectors. Our long-term strategy is to build Atlas to make the most of that future – through the quality and scale of our fleet, through the efficiency of our operations, and through the strength of our business relationships.
“Our acquisition of Southern Air in early April and the addition of its express-focused 777 and 737 CMI services generated immediate earnings accretion in the second quarter,” he added. “Our quarterly earnings also reflected an increase in military cargo and passenger demand but a slower pace in general commercial cargo. In addition, we incurred initial startup expenses in preparation for our new long-term 767 service for Amazon and its growing e-commerce business.”
Flynn said the company expects to place its first aircraft into service for Amazon during the third quarter and has secured all of the conversion slots and the majority of feedstock aircraft required to support all 20 B767-300s for Amazon by the end of 2018. Atlas Air expects both the acquisition of Southern Air and its agreement with Amazon to be meaningfully accretive to its longer-term earnings and cash flows.
Analysts with investment firm Cowen and Co. said the Amazon startup costs will weigh on Atlas Air revenues for the next few quarters, but that the long-term gains will outweigh the short-term negative impact.
“We believe Amazon will be dilutive to earnings until 2H17 due to start up costs and a slow ramp-up of aircraft placements,” Cowen wrote in a recent client note. “This deal should ultimately be very accretive to Atlas. We forecast two aircraft will be placed into service in 2016 and ten aircraft placed in 2017. In addition to increased costs, CapEx will remain high through 2017.”
For third quarter 2016, Cowen forecasts EPS of $1.11, down from a previous estimate of $1.52 per share and consensus of $1.44 per share, and for the full year it forecasts EPS of $4.45, down from $4.85 per share previously and a consensus of $4.78 per share.
Amazon deal drags on Atlas Air Q2 earnings
