Why Is Sabre (SABR) Up 7.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Sabre (SABR). Shares have added about 7.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sabre due for a pullback? 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 catalysts.

Sabre reported adjusted earnings per share of 37 cents for second-quarter of 2018 that increased 5.7% on a year-over-year basis and surpassed the Zacks Consensus Estimate of 35 cents.

Revenues came in at $984.4 million, up 9.3% from the year-ago quarter, and topped the Zacks Consensus Estimate of $947 million.

A supportive macro global environment marked by cost reduction and Sabre’s business alignment program that kicked off in August last year aided second-quarter results. However, increase in technology costs was an overhang on margins.

Revenue Details

Travel Network revenues increased 13.2% year over year to $719.7 million. The growth was backed by 7.6% increase in global bookings during the quarter. New business wins and conversions backed results.

In Asia Pacific, bookings grew around 23.5% backed by strong market growth and completion of the Flight Centre agency conversion. Bookings in North America and EMEA increased 5% each driven by large global travel management companies. However, unfavorable economic factors   resulted in a 1.4% decline in Latin American bookings.

Airline Solutions revenues for the quarter came in at $204.68 million, marking a decline of 2.4% from the year-ago quarter. Implementation of new revenue recognition standard led to a low-single digit decline in AirVision and AirCentre commercial and operations solutions revenues. Revenues at SabreSonic Passenger Reservation System declined in low single digits due to the termination of Southwest Airlines’ legacy reservations system services.

Hospitality Solutions revenues driven by Central Reservation System (CRS) were up 10.4% year over year to $68.3 million. The completion of SynXis CRS implementation at Wyndham drove teens growth in the SynXis (CRS) software and service revenue line.

Margin Details

Adjusted gross profit came in at $373.7 million, up 1.4% from the year-ago quarter. Adjusted gross margin however declined 300 basis points (bps) to 37.9%.

Adjusted operating income decreased 60.3% to $172 million due to increased technology costs for cloud transition and other expenses. Adjusted operating margin of 17.5% was down 170 bps.

Adjusted operating income for the Travel Network increased 6.9% 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, depreciation and amortization were a dampener.
  
Adjusted operating income for Airline Solutions decreased 35.3% owing to the de-migration of Southwest Airlines among others. Moreover, headcount-related expenses resulted in a 10.4% decline in adjusted operating income of Hospitality Solutions.
 
Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $370 million compared with $361.1 million in the previous quarter.

Cash flow from operations was $146.6 million and free cash flow was $79.5 million in the second quarter. The company paid $38.5 million during the quarter in the form of dividends and $26.3 million for share repurchases.
  
Guidance

Sabre reiterated its full-year 2018 guidance. Revenues are expected to be in the range of $3.76 billion to $3.84 billion, indicating 4% to 7% growth.

Adjusted operating income is expected to be between $665 million and $705 million. Adjusted earnings per share are anticipated to be in the range of $1.39 to $1.53.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Sabre has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Sabre has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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