ATSG Reports Results for Second Quarter 2012
Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported financial results as follows for the second quarter of 2012:
Summary GAAP Results
Quarter Ended June 30, Six Months Ended June 30,
(in millions, except per-share amounts) 2012 2011 Chg. 2012 2011 Chg.
Revenues $ 153.6 $ 193.1 $ (39.5 ) $ 299.1 $ 368.2 $ (69.1 )
Pre-tax Earnings from Continuing Operations $ 18.2 $ 19.7 $ (1.5 ) $ 28.9 $ 24.2 $ 4.7
Net Earnings from Continuing Operations $ 11.2 $ 12.3 $ (1.1 ) $ 17.9 $ 15.2 $ 2.7
Earnings Per Share from Continuing Operations $ 0.17 $ 0.19 $ (0.02 ) $ 0.28 $ 0.24 $ 0.04
Adjusted (non-GAAP) Results *
Revenues excluding Reimbursed Expenses $ 133.2 $ 143.4 $ (10.2 ) $ 261.8 $ 274.3 $ (12.5 )
Adjusted Pre-tax Earnings from Continuing Operations $ 18.0 $ 19.3 $ (1.3 ) $ 28.3 $ 30.7 $ (2.4 )
Adjusted EBITDA from Continuing Operations $ 43.1 $ 46.7 $ (3.6 ) $ 77.2 $ 84.5 $ (7.3 )
* A table defining and reconciling adjusted results to comparable GAAP measures is provided at the end of this release.
"Our results for the second quarter are indicative of both our good internal progress toward reorganizing our ACMI Services operations, and the uncertain economic conditions that are causing some regional customers to prolong the commitment process," Joe Hete, President and CEO of ATSG, said. “While our business with global carriers like DHL continues to expand, regional market conditions are proving challenging to other customers. But we can still deploy our unique assets, complementary services, and leverage our strong balance sheet to adapt and grow as market conditions change because of our dominant global market share of mid-sized 767 freighters in a mix of long-term dry leases or shorter-term ACMI operating agreements."
Earnings for the first half of 2011 included an aggregate $6.8 million in net charges related to the 2011 refinancing of ATSG's credit facilities. Adjusted EBITDA from Continuing Operations excludes the effect of these items. Revenues also include reimbursement of certain expenses, particularly fuel, from some of ATSG's customers, including $35.0 million in reimbursement revenues in the second quarter of 2011 from former customer D.B. Schenker (Schenker), a North American logistics company.
Pre-tax earnings for Cargo Aircraft Management (CAM) were $16.7 million, up 22 percent from the year-earlier period. Revenues increased 16 percent to $38.1 million compared to the same period a year ago. CAM's second-quarter revenues and pre-tax earnings reflect a $0.7 million reserve for unpaid rent associated with a Boeing 767-200 freighter under dry lease to a regional air carrier.
At the end of June, CAM owned 54 aircraft in serviceable condition, including 21 leased to external customers and 32 leased to its ATSG airline affiliates. Additionally, ATSG airlines operate six freighters (four Boeing 767-200s, and two 767-300s) under operating leases with third parties. During the recent second quarter, ATSG added three Boeing 767-300 freighter aircraft. ATSG's aircraft fleet at year-end 2011, at June 30, 2012, and its current outlook for aircraft in service at the end of 2012 are summarized in a table at the end of this release.
Second quarter revenues for ATSG's airline operations were $101.3 million, excluding fuel and other reimbursed expenses, down from $115.1 million in the second quarter of 2011. The second-quarter pre-tax loss of $1.6 million was down from a $4.6 million pre-tax profit in the second quarter of 2011, but a $6.6 million improvement from the first quarter of 2012.
Results for the second quarter of 2011 included $25.0 million in airline services revenues from Schenker. As previously reported, Schenker ended its North American air freight network agreements with ATSG in the second half of 2011. Decreased segment results for the second quarter of 2012 primarily reflect the loss of the Schenker business and delays in customer commitments to ATSG aircraft.
ATSG is reorganizing its two airlines that served Schenker. The operations of Air Transport International (ATI) and Capital Cargo International Airlines (CCIA) are being combined, with CCIA's operations expected to merge into ATI by the end of 2012. Significant savings in these operations have already been achieved, as personnel expenses at ATI and CCIA have been reduced 24 percent from second-quarter 2011 levels. Further overhead expense reductions are expected in the second half, offset in part by expenses related to the reorganization.
On a sequential-quarter basis, the $6.6 million improvement in ACMI Services' pre-tax earnings from the first quarter of 2012 included stronger results from all three airline affiliates. More than two-thirds of that improvement came from ATI and CCIA, including a combination of increased revenues and net savings from the reorganization.
In June, ATI began operating three Boeing 767-200 freighters for DHL in the Middle East, bringing the total number of 767s in service for DHL in that region to four. It was originally anticipated that these three aircraft would go into service in the first quarter. Also, in June, ABX Air began to operate one 767-200 and one 767-300 freighter for DHL in the U.S.
First-half ACMI Services results also were affected by higher employee pension and engine maintenance expenses, and delays in aircraft deployments. Second-quarter ACMI block hours were down 15 percent overall from a year ago, but increased 15 percent excluding block hours operated for Schenker in the second quarter of 2011.
Second quarter revenues from ATSG's other businesses rose 5 percent from the second quarter of 2011 to $26.7 million before the elimination of inter-company results. Pre-tax profit from other activities totaled $3.2 million, nearly double the $1.7 million earned a year earlier. Higher revenues from ATSG's aircraft maintenance subsidiary (AMES) as well as the improved efficiency of mail sorting operations yielded improved results from those businesses.
Outlook for Second Half 2012
ATSG's outlook for the second half of 2012 remains positive overall, as revenues, earnings and cash flow (as measured by our Adjusted EBITDA), are all expected to improve compared with the first half of the year.
As noted above, ATI was awarded another two-year agreement for combi service beginning with the government's 2013 fiscal year in October, maintaining ATI's status as the military's sole source of combi service, primarily serving remote locations around the world.
Hete noted, "We are particularly proud to have been selected by the U.S. military to remain its exclusive supplier of combi service, and we look forward to the transition from our DC-8 combis to a more efficient 757-based combi fleet. The two-year revenue stream from the military validates our investment in the Boeing 757 platform and our plan to merge CCIA's Boeing 757 operation with ATI's military flying expertise."
Hete continued, "Our efforts to drive out costs while remaining prepared to seize new-business opportunities that achieve our investment return hurdles will continue. Our ACMI Services businesses are steadily recovering from the loss of our Schenker business, and weathering the impact of economic trends on our more regionally focused customers. We remain confident that we have the customer demand for our expanding fleet of modified aircraft. The delays in projected start dates, however, for 767 aircraft deployments are now significant enough that our previously issued guidance is no longer appropriate. We now expect Adjusted EBITDA from Continuing Operations for 2012 to be approximately $170 million. We will continue to aggressively pursue both cost savings and new business that can yield even stronger results in 2013 and beyond."