Spirit (SAVE) Q2 Earnings: What's in the Cards for the Stock?

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Spirit Airlines, Inc . SAVE is scheduled to report second-quarter 2018 earnings numbers on Jul 26, before the market opens.

Last reported quarter, the company delivered a positive earnings surprise of 2.3%. Although the company's earnings came in above the Zacks Consensus Estimate, the metric was down significantly year over year. High fuel costs were primarily responsible for the bottom-line decline from the prior-year figure. Meanwhile, revenues fell short of the consensus mark but increased year over year on healthy passenger revenues. Notably, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average beat of 3.1%.

However, the company is not likely to repeat its success trend in the soon-to-be-reported quarter due to the following factors:

High fuel costs are likely to hurt the company's bottom line in the second quarter as well. The company expects fuel costs of $2.32 per gallon, higher than $2.15 reported in the previous quarter and also $1.66, in the year-ago quarter. The Zacks Consensus Estimate for the same also stands at $2.32 per gallon.

Capacity overexpansion is another cause for concern with respect to the carrier. Capacity is projected to rise approximately 30.5% in the second quarter, much higher than 13.6% in the year-earlier period. It remains to be seen whether load factor rises substantially to offset the capacity growth.

Soft unit revenues are also likely to hamper results in the quarter to be reported. The company expects total revenue per available seat mile (TRASM) to decline approximately 6.8%. This downside is due to better-than-expected completion factor leading to higher capacity. In fact, the company's TRASM has been affected to the tune of approximately 50 basis points.

However, the carrier's guidance for second-quarter non-fuel unit costs is encouraging. The metric is expected to decrease approximately 11% on an adjusted basis. Improved operation performance apart from the shift of certain expense items from the second to the final quarter of 2018 contributed to this upbeat projection. This bullish prediction is likely to partly offset the rise in fuel costs and aid in bottom-line growth. The Zacks Consensus Estimate for second-quarter non-fuel unit costs stands at 5.37 cents, falling below 5.83 cents reported a year ago.

Earnings Whispers

Per our proven model, a company needs to have the right combination of the following two key ingredients - a positive Earnings ESP and a favorable Zacks Rank #3 (Hold) or better - to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.

Earnings ESP : Spirit Airlines has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.09 per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Spirit Airlines carries a Zacks Rank of 3, which increases the predictive power of ESP, However, the company's 0.00% ESP makes surprise prediction difficult.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Spirit Airlines, Inc. Price and EPS Surprise

Spirit Airlines, Inc. Price and EPS Surprise | Spirit Airlines, Inc. Quote

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like United Parcel Service, Inc. UPS , Expeditors International of Washington, Inc. EXPD and Norfolk Southern Corporation NSC as these possess the right combination of elements to deliver an earnings beat this reporting cycle.

UPS has an Earnings ESP of +0.62% and a Zacks Rank #2 (Buy). The company will report second-quarter earnings on Jul 25.

Expeditors has an Earnings ESP of +1.54% and a Zacks Rank of 2. The company will report second-quarter earnings on Aug 7. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Norfolk Southern is a #2 Ranked stock and has an Earnings ESP of +0.36%. The company will announce second-quarter financial numbers on Jul 25.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: SAVE , NSC , EXPD , UPS

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