Sabre (SABR) Q3 Earnings and Revenues Top Estimates, Up Y/Y

Sabre Corporation SABR reported third-quarter 2018 adjusted earnings per share of 39 cents that increased 25.8% on a year-over-year basis and surpassed the Zacks Consensus Estimate of 34 cents.

Revenues came in at $970.3 million, up 7.7% from the year-ago quarter and topped the consensus estimate of $941 million.

A supportive macro global environment marked by cost reduction and Sabre’s business alignment program that kicked off in August last year, aided results.The company also gained from its transaction-driven business model with recurring revenues driven by continued customer growth in the Travel Network segment.

However, increase in technology costs along with higher depreciation and amortizations (D&A) were overhangs on margins.

Sabre Corporation Price, Consensus and EPS Surprise

 

Sabre Corporation Price, Consensus and EPS Surprise | Sabre Corporation Quote

Revenue Details

Travel Network revenues increased 10.7% year over year to $700.2 million. The growth was backed by 7.7% increase in global bookings. New business wins and conversions aided results.

In Asia Pacific, bookings grew around 17.8% backed by strong market growth and completion of the Flight Centre agency conversion. Bookings in North America and EMEA increased 8% and 3.7%, respectively, driven by large global travel management companies. However, unfavorable economic factors resulted in a 6.3% decline in Latin American bookings.

Airline Solutions revenues for the quarter came in at $209.4 million, marking an increase of 1.1% from the year-ago quarter. AirVision and AirCentre commercial and operations solutions revenues increased 6%.

Revenues at SabreSonic Passenger Reservation System remained flat year over year. The conclusion of its implementation at LATAM Airlines was offset by decline in SabreSonic services and other discrete professional services revenues.

Hospitality Solutions revenues grew 3.1% year over year to $69.9 million, driven by growth in SynXis software and services revenues. Growth in central reservations system transactions was partially offset by a fall in project-based digital marketing services revenues.

Margin Details

Adjusted gross profit came in at $377.8 million, up 1.8% from the year-ago quarter. Adjusted gross margin however declined 230 basis points (bps) to 38.9% due to increased technology costs and Travel Network incentives.

Adjusted operating income increased 3.5% to $173.9 million. Adjusted operating margin of 17.9% fell 80 bps.

Adjusted operating income for the Travel Network increased 6.1% on the back of strong revenue growth as well as cost reduction and business alignment program benefits. However, increase in incentive-related expenses, technology costs, D&A was a dampener.
   
Adjusted operating income for Airline Solutions decreased 28%. However, headcount-related expenses were leveraged by one point of pressure due to the company’s cost-reduction efforts.

There was 13.1% growth in adjusted operating income of Hospitality Solutions due to shift of revenue mix toward higher-margin recurring revenues, among others. Moreover, D&A grew 27% from the prior-year quarter.

Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $444.3 million compared with $370 million in the previous quarter.

Cash flow from operations was $194.4 million and free cash flow was $120.6 million in the third quarter.

The company paid $38.5 million during the quarter in the form of dividends and $26.3 million for share repurchases.

Other Details

During the quarter, Sabre was certified as NDC level 3 aggregator by International Air Transport Association.

The company also started its Beyond NDC partner program in association with travel and airline industry leaders.

Sabre also continued to benefit from recent partnerships with platforms like Booking.com.

During the quarter, Sabre unveiled the Sabre Commercial Platform with Aeroflot, Etihad and Ethiopian Airlines as initial launch partners. This is a major upgrade to the company’s SabreSonic and AirVision suite, and is expected to be a key growth driver.

Sabre also launched the Business Travel Services Suite with IHG as an early adopter of the solution.

Guidance

Encouraged by the strong performance in the third quarter, Sabre raised its full-year 2018 guidance. Revenues are now expected to be in the range of $3.85 million to $3.88 million, indicating 7% to 8% growth, up from the previously guided range of $3.76-$3.84 billion.

Adjusted operating income is now expected to be between $695 million and $705 million compared with the previous projection of $665-$705 million. Adjusted earnings per share are anticipated to be in the range of $1.49 to $1.54, up from $1.39 to $1.53 projected earlier.

The company expects full-year revenues at Airline Solutions to remain flat year over year against the previously expected decline. This is due to higher-than-expected renewal rates.

Travel Network revenues for the full year is expected to grow 9.5-10.5%, up from the earlier guidance of 6-8% rise.

For the fourth quarter, management expects ASC 606 to negatively impact revenue growth by $7 million.

Hospitality Solutions revenues are expected to grow in the year, driven by rise in SynXis software and services revenues. However, fall in digital marketing services revenues is expected to offset growth in this segment. Revenues are expected to decline slightly in the fourth quarter, as some expected deals are not likely to be closed in the quarter. However, being a low-margin business, this will not impact the bottom line.

Zacks Rank and Stocks to Consider

Sabre currently carries a Zacks Rank #3 (Hold).

A few stocks worth considering in the broader Computer and Technology sector are Intel Corporation INTC, Twitter, Inc. TWTR and CyberArk Software Ltd. CYBR, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Intel, Twitter and CyberArk is projected to be 8.42%, 22.05% and 19.83%, respectively.

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