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Why Is Spirit (SAVE) Down 15.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Spirit (SAVE). Shares have lost about 15.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Spirit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Q1 Loss Narrows at Spirit

Quarterly loss (excluding 13 cents from non-recurring items) of 82 cents per share was narrower than the Zacks Consensus Estimate of a loss of 89 cents. In the year ago quarter, SAVE posted a loss of $1.60.

Revenues of $1,349.8 million missed the Zacks Consensus Estimate of $1,353.5 million. However, the top line improved 39.5% year over year on the back of increased flight volume and higher operating yields.

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In first-quarter 2023, passenger revenues, which accounted for the bulk of the top line (98.3%), increased 39.8% year over year to $1,327.5 million. Other revenues increased 26.9% year over year to $22.3 million.

All comparisons (in %) are presented below on a year-over-year basis.

Reflecting the uptick in air-travel demand, consolidated traffic (measured in revenue passenger miles) at Spirit rose 18% in the reported quarter. To cater to this increased demand, capacity (measured in available seat miles) expanded to 12.7%. The load factor increased 3.6 points to 80.8%.

Total operating revenue per available seat miles jumped 23.9% to 10.22 cents in the reported quarter. The average yield increased 18.2% to 12.64 cents.

Adjusted operating expenses (excluding fuel) escalated 25.1% to $1,441.1 million. The average fuel cost per gallon in the reported quarter rose to $3.43, up 16.3%. Fuel gallons consumed skyrocketed 14% to $142.34 million, reflecting the use of more planes to cater to upbeat air-travel demand. Adjusted cost per available seat miles, excluding fuel, increased 8.1%.

Spirit took delivery of five new A320neo aircraft in the first quarter of 2023. Total number of aircraft in its fleet at the end of the quarter under review was 195, up 10.8% from first-quarter 2022.

The company exited the quarter with unrestricted cash, cash equivalents and short-term investments, and the liquidity available under the carrier’s revolving credit facility of $1.7 billion. Capital expenditure for the quarter was $86 million, primarily related to net outflows of aircraft pre-delivery deposits, expenditures related to the building of Spirit's new headquarter’s campus in Dania Beach, FL and spare parts, including one spare engine.

Q2 Guidance

Total revenues are expected to be between $1.46-$1.48 billion. Adjusted operating margin is expected to be between 4.5% and 6.5%. Fuel gallons consumed are expected to be $151 million.

Fuel price per gallon is anticipated to be $2.60. The effective tax rate is projected to be 25%. Available seat miles are anticipated to increase 17.7% from second-quarter 2022 actuals.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Spirit has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Spirit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Spirit belongs to the Zacks Transportation - Airline industry. Another stock from the same industry, United Airlines (UAL), has gained 10.9% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

United reported revenues of $11.43 billion in the last reported quarter, representing a year-over-year change of +51.1%. EPS of -$0.63 for the same period compares with -$4.24 a year ago.

United is expected to post earnings of $3.70 per share for the current quarter, representing a year-over-year change of +158.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.2%.

United has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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