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Will High Costs Mar Alaska Air Group's (ALK) Q2 Earnings?

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Alaska Air Group, Inc . ALK is slated to report second-quarter 2018 results on Jul 26, before the market opens.

In the first quarter of 2018, the company's earnings (excluding 11 cents from non-recurring items) of 14 cents, surpassed the Zacks Consensus Estimate by 3 cents. However, the bottom line declined 86.7% on a year-over-year basis due to high costs. Revenues came in at $1,832 million, marginally above the Zacks Consensus Estimate of $1,830.6 million.

Let's see how things shape up for this earnings season.

In the to-be-reported quarter, high costs are expected to hurt the bottom line as was the case in the first quarter. Notably, the carrier expects second-quarter non-fuel unit costs to rise approximately 3.5% year over year. Also, economic fuel cost per gallon is anticipated to increase nearly 35% to $2.31.

The Zacks Consensus Estimate for second-quarter non-fuel unit costs is pegged at 8.53 cents. The consensus mark for economic fuel cost per gallon stands at $2.35, higher than $2.14 in the first quarter of 2018.

Woes related to capacity overexpansion are hurting the company for quite some time and the second quarter is unlikely to be any different. In the first six months of 2018, load factor (% of seats filled by passengers) contracted 100 basis points to 83.2% as capacity expansion (7.7%) outpaced traffic growth (6.4%). For the second quarter of 2018, the carrier expects capacity to increase approximately 8%.

Alaska Air Group's below-par performance with respect to unit revenues is an added concern. Total revenue per available seat mile (RASM: a key measure of unit revenues) is projected to decline in the 4-5% range in the yet-to-be-reported quarter.

However, solid growth in passenger revenues owing to strong demand for air travel is likely to aid the company's second-quarter results.

Earnings Whispers

Per the Zacks proven model, a company needs the right combination of the two key ingredients - a positive Earnings ESP and a 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: Alaska Air Group has an Earnings ESP of +2.35% as the Most Accurate Estimate of $1.66 is 4 cents higher than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Alaska Air Group's Zacks Rank #5 (Strong Sell) acts as a spoiler. The bearish rank combined with a positive Earnings ESP, leaves the surprise prediction inconclusive.

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

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 Canadian National Railway Company CNI asthese possess the right combination of elements to come up with an earnings beat in their next releases.

UPS has an Earnings ESP of +0.62% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

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

Canadian National has an Earnings ESP of +1.83% and a Zacks Rank #3. The company will report second-quarter earnings on Jul 24.

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Alaska Air Group, Inc. (ALK): Free Stock Analysis Report

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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.


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

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