Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced adjusted net income attributable to common stockholders of $38.8 million, or $1.55 per diluted share, for the three months ended December 31, 2014, compared with $41.8 million, or $1.66 per diluted share, for the three months ended December 31, 2013.
On a reported basis, fourth-quarter 2014 net income attributable to common stockholders totaled $41.6 million, or $1.66 per diluted share, compared with $30.0 million, or $1.19 per diluted share, in the fourth quarter of 2013.
Free cash flow of $97.2 million in the fourth quarter of 2014 compared with $92.0 million in the fourth quarter of 2013.
“2014 ended on a strong note, continuing the improvement we saw throughout the year, and 2015 is starting out well,” said William J. Flynn, President and Chief Executive Officer. “After the first significant peak-season in several years, airfreight activity in the first quarter so far continues to reflect the broad-based pickup in demand that began in 2014.
“Both operationally and financially, our fourth-quarter and full-year performance stemmed from the leadership and strength of our ACMI and Charter businesses, the growth of our Dry Leasing platform, and ongoing efforts to drive efficiency and productivity through our continuous improvement initiatives. In addition, average utilization of our operating fleet rose during the year as we capitalized on the improvement in market demand with our modern, efficient aircraft and innovative services.
“We performed a substantial amount of conditions-based heavy maintenance activity during the fourth quarter, primarily for engine overhauls on our 747-400 fleet. This positions us to continue to take advantage of market growth and business opportunities ahead.”
Profitability in our ACMI business during the fourth quarter reflected an increase in aircraft utilization driven by market demand. This was offset by an increase in heavy maintenance expense on our 747-400 aircraft and engines.
Improved Charter contribution during the quarter reflected an increase in cargo aircraft block-hour rates and utilization, driven by market demand and our decision to reduce cargo capacity at the end of 2013, and an increase in passenger block-hour volumes. These were partially offset by increases in heavy maintenance expense as well as crewmember travel and ground handling expenses from flying to higher cost locations.
In Dry Leasing, revenue and profitability grew following the acquisition of three 777 freighter aircraft in the first quarter of 2014, which raised our 777 fleet count to six. Each of these aircraft is leased to a customer on a long-term basis.
Reported results in the fourth-quarter included an income tax rate benefit of 7.0%, primarily due to an income tax benefit of $10.7 million related to beneficial tax planning regarding the treatment of extraterritorial income from the offshore leasing of certain of our aircraft. Reported results also included a pretax special charge of $5.5 million, primarily related to an aircraft held for sale.
Beginning with the fourth quarter of 2014, we have combined our commercial and military charter businesses in a single Charter segment as we now assess operating results at that level. Our decision recognizes the smaller size of our military business compared with the past and the increased interchangeability of our Charter aircraft between commercial and military customers.
For the twelve months ended December 31, 2014, adjusted net income attributable to common stockholders totaled $93.5 million, or $3.72 per diluted share, compared with $96.8 million, or $3.78 per diluted share, for the twelve months ended December 31, 2013.
On a reported basis, full-year 2014 net income attributable to common stockholders totaled $106.8 million, or $4.25 per diluted share, compared with $93.8 million, or $3.66 per diluted share, in 2013.
Reported earnings in 2014 included an effective income tax rate benefit of 14.2%, primarily due to an income tax benefit of $34.8 million related to beneficial tax planning regarding the tax treatment of extraterritorial income from the offshore leasing of certain of our aircraft. Our effective income tax rate also reflected the ongoing beneficial impact of lower taxes for certain foreign subsidiaries in our Dry Leasing business as well as the favorable change in our deferred foreign tax rates.
Free cash flow totaled $247.8 million in 2014 compared with $270.2 million in 2013.
At December 31, 2014, our cash, cash equivalents, short-term investments and restricted cash totaled $330.7 million, compared with $339.2 million at December 31, 2013.
The change in position reflected cash provided by operating and financing activities offset by cash used for investing activities.
Net cash used for investing activities during 2014 primarily related to the purchase of three 777 freighters for our Dry Leasing business.
Net cash provided by financing activities primarily reflected proceeds from the issuance of debt in connection with the acquisitions of these aircraft. Those proceeds were partially offset by payments on debt obligations and debt issuance costs.
We begin 2015 with a favorable view about the prospects for the overall airfreight environment and the demand for our aircraft and services. As a result, we look for moderate growth in adjusted fully diluted earnings per share this year.
Our current outlook reflects two primary considerations.
First, industry forecasts indicate that global airfreight demand will grow approximately 4% to 5% in 2015, outpacing projected growth in global trade. Similar to 2014, achieving growth at this level will require a continuation of positive global economic activity driven by healthy consumer and business confidence.
Second, while our operating results are expected to benefit from a reduction in maintenance expense in 2015 compared with 2014, we face a continued contraction in military demand as U.S. military activities overseas are scaled down.
We are seeing good airfreight demand in the first quarter of 2015 leading up to the start of the Lunar New Year holidays in Asia on February 19. We expect earnings per share in the first quarter, which is usually the lowest volume-generating and highest maintenance expense quarter of the year, to be in line with or better than our first-quarter 2014 adjusted EPS of $0.45.
At this point in the year, there is limited visibility into second-half airfreight market demand. Typically, the majority of our earnings are generated in the second half, and we will update our expectations as the year progresses. Should commercial airfreight continue to grow as anticipated in 2015, our business initiatives and investments have positioned Atlas to be one of the prime beneficiaries.
For the full year, we expect total block hours to be several percentage points higher than 2014, with approximately 75% in ACMI and the balance in Charter. ACMI block hours are anticipated to reflect additional 747-8 and 747-400 flying as well as an increase in CMI operations, driven primarily by the addition of four customer-owned 767 freighters to our fleet in the first quarter.
In March, we will place an additional 747-8 freighter into ACMI service for the benefit of DHL Express. This aircraft will initially replace an existing 747-400 operating for DHL today. The placement reflects the continuing growth of DHL’s transpacific operations. To effect this, one 747-8 freighter currently in ACMI service for Panalpina will transition promptly to DHL.
We will continue to operate a 747-8 freighter for Panalpina between Europe, the United States and points in Mexico on an ACMI basis. We have also entered into a long-term 747-400 charter agreement with Panalpina as it expands its unique network and extends its customer service. This new freighter service for Panalpina commences in March.
Results in our Dry Leasing segment will continue to be driven largely by the six 777 freighters that we acquired in 2013 and 2014, each with a long-term customer lease in place.
Aircraft maintenance expense in 2015 should total approximately $175 million, and depreciation is expected to total approximately $125 million. In addition, we anticipate an effective book income tax rate of approximately 28%. Core capital expenditures, excluding aircraft and engine purchases, are expected to total between $30 to $40 million, mainly for spare parts for our fleet.
Mr. Flynn added: “In addition to expected earnings growth this year, we continue to focus on the longer-term growth of our business. With a resilient business model, strong customer relationships and a superior fleet, we are well-positioned to capitalize on market improvements, to generate substantial earnings and cash flow, and to continue to enhance shareholder value.”
Management will host a conference call to discuss Atlas Air Worldwide’s fourth-quarter and full-year 2014 financial and operating results at 11:00 a.m. Eastern Time on Thursday, February 12, 2015.
Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on “Investor Information”, click on “Presentations” and on the link to the fourth-quarter call) or at the following Web address:
http://edge.media-server.com/m/p/dunzmhep
For those unable to listen to the live call, a replay will be available on the above Web sites following the call. A replay will also be available through February 18 by dialing (855) 859-2056 (domestic) and (404) 537-3406 (international) and using Access Code 74290072#.
To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include EBITDAR, as adjusted; EBITDA, as adjusted; Direct Contribution; Adjusted Net Income Attributable to Common Stockholders; Adjusted Diluted EPS; and Free Cash Flow, which exclude certain items. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.
Our management uses these non-GAAP financial measures in assessing the performance of the Company’s ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.
Atlas Air Worldwide is a leading global provider of outsourced aircraft and aviation operating services. It is the parent company of Atlas Air, Inc. (Atlas) and Titan Aviation Holdings, Inc. (Titan), and is the majority shareholder of Polar Air Cargo Worldwide, Inc. (Polar). Through Atlas and Polar, Atlas Air Worldwide operates the world’s largest fleet of Boeing 747 freighter aircraft.
Atlas, Titan and Polar offer a range of outsourced aircraft and aviation operating solutions that include ACMI service – in which customers receive an aircraft, crew, maintenance and insurance on a long-term basis; CMI service, for customers that provide their own aircraft; express network and scheduled air cargo service; cargo and passenger charters; and dry leasing of aircraft and engines.
Atlas Air Worldwide’s press releases, SEC filings and other information can be accessed through the Company’s home page, www.atlasair.com.
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of Atlas Air Worldwide and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.
For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed by Atlas Air Worldwide with the Securities and Exchange Commission. Other factors and assumptions not identified above may also affect the forward-looking statements, and these other factors and assumptions may also cause actual results to differ materially from those discussed.
Except as stated in this release, Atlas Air Worldwide is not providing guidance or estimates regarding its anticipated business and financial performance for 2015 or thereafter.
Atlas Air Worldwide assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.
