Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW), a leading global provider of outsourced aircraft and aviation operating solutions, today announced adjusted net income attributable to common stockholders of $41.8 million, or $1.66 per diluted share, for the three months ended December 31, 2013, compared with $48.7 million, or $1.83 per diluted share, for the three months ended December 31, 2012.
On a reported basis, fourth-quarter 2013 net income attributable to common stockholders totaled $30.0 million, or $1.19 per diluted share, compared with $52.4 million, or $1.97 per diluted share, in the fourth quarter of 2012.
Free cash flow of $92.3 million in the fourth quarter of 2013 compared with $53.3 million in the fourth quarter of 2012.
“Earnings in the fourth quarter of 2013 were led by our ACMI operations, a strong contribution by our Commercial Charter segment, which reported a profit for the full year, and growth in our Dry Leasing business,” said William J. Flynn, President and Chief Executive Officer. “Results were also affected by a substantial reduction in AMC Charter volumes and segment contribution, reflecting lower demand levels than previously forecast by the military.
“Earnings in Commercial Charter were driven by a sharp increase in block hours flown by our aircraft as global-market peak-season volumes picked up in late October through December.
“Operating results during the quarter were supported by the investments we’ve made to strengthen and diversify our business mix, including our 747-8 freighters in ACMI; the addition of 777 freighters with predictable, long-term revenue and earnings streams in Dry Leasing; our expanding 767 service; growing CMI operations within ACMI; VIP and other passenger charters; and ongoing continuous improvement initiatives.”
Reported results for the period reflected our decision to reduce our operating fleet by two aircraft. In December, we permanently parked two 747-400BCFs that we had leased following delays in the delivery of our 747-8 freighters. As a consequence, our reported earnings included a special charge related to the termination of the operating leases for these BCFs.
Increased revenues, higher volumes and profitability in our ACMI business during the fourth quarter were driven by our new 747-8Fs, with an average of 1.7 additional -8F aircraft in service compared with the fourth quarter of 2012; higher rates per block hour for our -8Fs; and the continued ramp up and expansion of CMI service. ACMI customers also continued to fly above minimum contract levels. These results were offset by a lower average utilization for all aircraft in the segment and an increase in maintenance expense due to the timing of required initial airframe checks on our first three -8F aircraft.
In Dry Leasing, revenue and profitability grew following the acquisition of one 777-200LRF aircraft in March 2013 and two 777-200LRF aircraft in July 2013. Each aircraft was acquired with a long-term customer lease already in place.
In AMC Charter, a reduction in cargo and passenger block hours, as well as a reduced number of one-way AMC missions and a change in the proportion of those missions from outbound U.S. to inbound U.S., led to a significant decline in segment contribution. Lower average cargo and passenger revenue per block hour during the period stemmed from a reduction in the average pegged fuel price set by the U.S. military.
Profitability in Commercial Charter primarily reflected an increase in volumes and an improvement in aircraft utilization compared with the fourth quarter of 2012. Charter operations during the quarter benefited from the redeployment of 747-400 and 747-8F aircraft during ACMI marketing periods, higher rates on 747-8F aircraft, and passenger charters for sporting events, concert tours, VIP and other private charters. Market airfreight yields improved on a seasonal basis during the period, but remained under pressure overall.
Reported fourth-quarter results included a special charge of $18.6 million, primarily related to a lease termination charge for the two 747-400BCFs parked in December.
Reported earnings for the fourth quarter of 2013 also included an effective income tax rate of 30.7%, reflecting the ongoing beneficial impact of lower taxes for certain foreign subsidiaries in our Dry Leasing business.
For the twelve months ended December 31, 2013, adjusted net income attributable to common stockholders totaled $96.8 million, or $3.78 per diluted share, compared with $127.0 million, or $4.78 per diluted share, for the twelve months ended December 31, 2012.
On a reported basis, full-year 2013 net income attributable to common stockholders totaled $93.8 million, or $3.66 per diluted share, compared with $129.9 million, or $4.89 per diluted share, in 2012.
Reported earnings in 2013 included an effective income tax rate of 20.2%, mostly due to the tax treatment of extraterritorial income from the offshore leasing of certain of our aircraft. In addition, the effective rate reflected the net impact of the resolution of certain income tax liabilities.
Free cash flow in 2013 increased to $273.1 million from $208.5 million in 2012.
At December 31, 2013, our cash, cash equivalents, short-term investments and restricted cash totaled $339.2 million, compared with $419.9 million at December 31, 2012.
The change in position reflected cash provided by operating and financing activities offset by cash used for investing activities.
Net cash used for investing activities during 2013 primarily related to the purchase of two 747-8F aircraft as well as three 777-200LRF aircraft for our Dry Leasing business.
Net cash provided by financing activities primarily reflected proceeds from the issuance of debt in connection with the acquisitions of these aircraft. Those proceeds were partially offset by payments on debt obligations and debt issuance costs.
During the year ended December 31, 2013, we repurchased a total of 1,723,577 shares, or 6.5%, of our outstanding common stock at December 31, 2012.
Future repurchases under our remaining $60 million authority may be made at our discretion, with the actual timing, form and amount dependent on company and market conditions.
We enter 2014 confident about the resilience of our business model and our ability to leverage the scale and efficiencies in our operations. Reflecting the business initiatives we have undertaken and the investments we have made, we have transformed the company to deliver meaningful earnings in any environment.
Our current outlook reflects two primary considerations.
One, as U.S. military activities overseas are scaled down, the military’s demand for outsourced airlift, particularly cargo airfreight, also declines. Our most recent indication is that the decline will be steeper and faster than previously forecasted by the military. For 2014, we estimate that this decline will reduce earnings by approximately $0.70 per share from 2013 levels.
Two, global airfreight volumes have been essentially flat for the last three years. Atlas has remained healthy and profitable throughout this period by capitalizing on strategic initiatives to strengthen and diversify our business mix; generate operating efficiencies and continuous improvement gains; and enhance our portfolio of assets and services.
Should 2014 be the inflection point when growth returns to commercial airfreight, our business initiatives and the investments we have made have positioned Atlas to be one of the prime beneficiaries. If 2014 remains flat, we expect results to approximate 2013, excluding the $0.70 per share decline in AMC Charter.
At this point of the year, there is limited visibility into second-half airfreight market demand. We expect to be profitable in the first quarter, which is usually the lowest volume-generating and highest maintenance expense quarter of the year. Typically, the majority of our earnings are generated in the second half, and we will update our expectations as the year progresses.
For the full year, we expect total block hours to be several percentage points lower than 2013 block hours, with more than 70% in ACMI, less than 10% in AMC Charter, and the balance in Commercial Charter. Our Dry Leasing segment should show dramatic growth. Depreciation and heavy maintenance expense should each increase by about $10 million over 2013. As always, line maintenance will depend on block hours operated. In addition, we anticipate an effective book income tax rate of approximately 30%.
Mr. Flynn added: “As we have noted previously, airfreight remains a long-term growth industry despite current market challenges. We have transformed our business and expect to be profitable in any environment. We are well-positioned to capitalize on market improvements and to continue to focus on the long-term growth of our business. With a resilient business model, substantial operating leverage, strong customer relationships and a superior fleet, we continue to strengthen our competitive position and generate substantial free cash flow, which will enhance stockholder value.”
Management will host a conference call to discuss Atlas Air Worldwide’s fourth-quarter and full-year 2013 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, February 12, 2014.
Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on “Investor Information”, click on “Presentations” and on the link to the fourth-quarter call) or at the following Web address:
http://www.media-server.com/m/p/kkdeegog
For those unable to listen to the live call, a replay will be available on the above Web sites following the call. A replay will also be available through February 19 by dialing (855) 859-2056 (domestic) and (404) 537-3406 (international) and using Access Code 50793956#.
To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include EBITDAR, as adjusted; EBITDA, as adjusted; Direct Contribution; Adjusted Net Income Attributable to Common Stockholders; Adjusted Diluted EPS; and Free Cash Flow, which exclude certain items. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.
Our management uses these non-GAAP financial measures in assessing the performance of the Company’s ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.
Atlas Air Worldwide is the parent company of Atlas Air, Inc. (Atlas) and Titan Aviation Leasing (Titan), and is the majority shareholder of Polar Air Cargo Worldwide, Inc. (Polar). Through Atlas and Polar, Atlas Air Worldwide operates the world’s largest fleet of Boeing 747 freighter aircraft.
Atlas, Titan and Polar offer a range of outsourced aircraft and aviation operating solutions that include ACMI service – in which customers receive an aircraft, crew, maintenance and insurance on a long-term basis; CMI service, for customers that provide their own aircraft; express network and scheduled air cargo service; military cargo and passenger charters; commercial cargo and passenger charters; and dry leasing of aircraft and engines.
Atlas Air Worldwide’s press releases, SEC filings and other information can be accessed through the Company’s home page, www.atlasair.com.
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of Atlas Air Worldwide and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.
For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed by Atlas Air Worldwide with the Securities and Exchange Commission. Other factors and assumptions not identified above may also affect the forward-looking statements, and these other factors and assumptions may also cause actual results to differ materially from those discussed.
Except as stated in this release, Atlas Air Worldwide is not providing guidance or estimates regarding its anticipated business and financial performance for 2014 or thereafter.
Atlas Air Worldwide assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.
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