Sabre (SABR) Down 3.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Sabre (SABR). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sabre due for a breakout? 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 drivers.

Sabre Reports Q2 Results

Sabre reported second-quarter 2019 adjusted earnings per share of 24 cents, which decreased 35% on a year-over-year basis. However, the figure surpassed the Zacks Consensus Estimate of 22 cents.

Revenues came in at $1 billion, up 1.6% from the year-ago quarter. The figure also beat the consensus estimate of $994 million. Growth across each of its business segments drove results.
 
However, increased technology expenses due to high cloud migration-related costs, decline in technology capitalized expenditures, modest growth in Travel Network incentive expense per booking, and acquisition-related costs weighed on margins.

Revenue Details

Travel Network revenues increased 0.7% year over year to $724.6 million. The growth was backed by 0.3% increase in transaction revenues. Increase of 0.9% in bookings drove results for this segment. Incentive expense per booking also grew moderately.

Airline Solutions revenues came in at $211.8 million, marking an increase of 3.4% from the year-ago quarter. AirVision and AirCentre revenues increased 14.7%. SabreSonic revenues declined 3.0% due to the impact of insolvency of Jet Airways and volume reductions at a certain carrier due to a 737 MAX incident, and the demigration of Pakistan International Airlines. A 7.8% year-over-year decline in passengers boarded was also a headwind to SabreSonic revenues.

Hospitality Solutions revenues jumped 8.1% year over year to $73.9 million, driven by 28.1% growth in central reservation system transactions.

The second quarter marked the sixth consecutive quarter of strong gains in Sabre’s share in the Global Distribution System market. Bookings grew 8% in North America.

Moreover, Sabre’s SaaS airline solutions continue to gain momentum.

Margin Details

Adjusted gross profit came in at $350.4 million, down 6.2% from the year-ago quarter. Adjusted gross margin contracted 292 basis points (bps) to 35.04% due to increased technology costs and Travel Network incentives.

Adjusted operating income decreased 26.2% year over year to $127 million. Adjusted operating margin of 12.7% fell 480 bps.

Adjusted operating income for the Travel Network fell 18.5% due to increase in incentive-related expenses and technology costs.

Adjusted operating income for Airline Solutions decreased 0.7%.

Hospitality Solutions incurred an adjusted operating loss.

Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $396.85 million compared with $459.5 million in the previous quarter.

Cash provided by operating activities decreased to $152 million from $724.8 million sequentially.

Free cash flow was $105.7 million for the second quarter compared with $114.1 in the first quarter.

During the quarter, $45.5 million worth of shares were repurchased. Including dividends, Sabre returned $83.8 million to shareholders.

Guidance

Revenues for full-year 2019 are expected to be in the range of $3.97 billion to $4.05 billion. This indicates 3-5% growth. The Zacks Consensus Estimate stands at $3.99 billion.

Adjusted earnings per share are expected to be between 91 cents and $1.05.

Free cash flow is likely to be approximately $455 million. The company expects to return to profitability recovery in 2021.

Sabre expects 4-6% growth at Travel Network in 2019. However, Airline Solutions are expected to decline 2-4% year over year.

Hospitality Solutions revenues are expected to rise 7-9% in the year.

Sabre expects to complete its complete transition to a cloud-first infrastructure by the end of 2023.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a flat path over the past two months.

VGM Scores

At this time, Sabre has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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.

Outlook

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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