Atlas Air Worldwide Reports Third-Quarter 2014 Results

PURCHASE, N.Y.—(BUSINESS WIRE)—Atlas Air Worldwide Holdings, Inc. (Nasdaq:AAWW), a leading global provider of outsourced aircraft and aviation operating services, today announced adjusted net income attributable to common stockholders of $27.4 million, or $1.09 per diluted share, for the three months ended September 30, 2014, compared with $28.6 million, or $1.13 per diluted share, for the three months ended September 30, 2013.

On a reported basis, net income attributable to common stockholders in the third quarter of 2014 totaled $27.6 million, or $1.10 per diluted share, compared with $23.7 million, or $0.94 per diluted share, in the year-ago quarter.

“Both our third-quarter results and our recently announced placements of three additional ACMI aircraft and four more CMI aircraft illustrate the strength of our business and the demand for our industry-leading assets and services,” said William J. Flynn, President and Chief Executive Officer.

“With airfreight volumes continuing to improve and market yields beginning to pick up, we expect our diversified mix and new placements to drive sequential EPS growth in the fourth quarter. We anticipate adjusted fully diluted earnings per share of approximately $1.33 to $1.43 in the fourth quarter, and we are raising our full-year 2014 adjusted earnings outlook to approximately $3.50 to $3.60 per diluted share.”

Mr. Flynn added: “ACMI earnings in the third quarter were complemented by a profit in Commercial Charter, growth in our Dry Leasing business, and an improved contribution by our military charter operations. Earnings in Commercial Charter were driven by a sharp increase in block hours flown, reflecting the broad-based uptick in airfreight demand. In Dry Leasing, our results benefited from our addition of 777 freighters that generate predictable, long-term revenue and earnings streams. And in AMC Charter, we benefited from an enhanced share of available military flying requirements.

“Reflecting our commitment to shareholder value, we acquired 1.8% of our outstanding common stock through our share repurchase program during the third quarter. Our capital allocation strategy is dedicated to creating, enhancing and returning value to our shareholders, both through business growth and returns of capital.”

We recently placed three incremental Boeing 747 freighters, a 747-8F and two 747-400Fs, into ACMI service for the benefit of DHL Express, the world’s leading international express shipping company, and Etihad Cargo, the fast-growing freight division of Etihad Airways. The placements increase the number of our aircraft in ACMI to 22 from 19.

In addition, we recently announced the expansion of our 767 CMI service in North America for DHL Express. This expansion covers four incremental 767-200 freighter aircraft owned by DHL that we expect to begin flying during the first quarter of 2015.

Adjusted earnings in the third quarter of 2014 excluded a tax adjustment of $0.1 million, or $0.01 per diluted share, related to the company’s Global Supply Systems Limited subsidiary. Adjusted earnings in the third quarter of 2013 excluded an after-tax loss of $4.5 million, or $0.18 per diluted share, on the early extinguishment of debt, and a loss of $0.3 million, or $0.01 per diluted share, on the disposal of aircraft.

Third-Quarter Results

Profitability in our ACMI business during the third quarter reflected an increase in 747-8F revenue and an increase in CMI flying, offset by an increase in maintenance expense on our -8F aircraft and lower 747-400 flying by certain ACMI customers.

In Dry Leasing, revenue and profitability grew following the addition of three 777F aircraft in January 2014 and two in July 2013, which raised our 777F fleet count to six. Each of these aircraft are leased to customers on a long-term basis.

Results in AMC Charter benefited from an increase in block hours and aircraft utilization, partially offset by a decrease in revenue per block hour due to a reduction of the average “pegged” fuel price set by the AMC. Stronger than expected demand for cargo flying and incremental passenger flying as a result of former competitors exiting the AMC Charter market drove contribution growth in the third quarter.

Profitability in Commercial Charter primarily reflected an increase in volumes and improvement in aircraft utilization compared with the third quarter of 2013. Charter operations during the quarter benefited from the broad-based uptick in demand, partially offset by additional travel and ground handling expenses from flying to high-cost locations.

Reported earnings for the period included an effective income tax rate of 29.1%, reflecting the ongoing beneficial impact of lower taxes for certain foreign subsidiaries in our Dry Leasing business.

Nine-Month Results

For the nine months ended September 30, 2014, adjusted net income attributable to common stockholders totaled $54.7 million, or $2.17 per diluted share, compared with $54.9 million, or $2.13 per diluted share, for the nine months ended September 30, 2013.

On a reported basis, nine-month 2014 net income attributable to common stockholders totaled $65.1 million, or $2.59 per diluted share, compared with $63.9 million, or $2.48 per diluted share, in the first nine months of 2013.

Cash and Short-Term Investments

At September 30, 2014, our cash, cash equivalents, short-term investments and restricted cash totaled $287.7 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 the first nine months of 2014 primarily related to the purchase of three 777F aircraft 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.

Share Repurchases

During the third quarter, we repurchased 458,937 shares of our common stock for $15.0 million, or 1.8% of our outstanding common stock at June 30, 2014.

Future repurchases under our remaining $45.0 million authority may be made at our discretion, and the actual timing, form and amount will depend on company and market conditions.

Outlook

We are encouraged by our performance in the first nine months of 2014 and the positive direction of market trends so far this year.

Airfreight volumes continue to improve, and recent industry reports suggest that airfreight demand will grow by several percentage points in 2014 – outpacing supply and driving the first real growth since 2010. We are seeing a general increase in demand across all regions, with the greatest growth in the transpacific market. An increase in online shopping and several new high-tech product launches during peak season also continue to favor airfreight.

As a result, we anticipate adjusted and reported fully diluted earnings per share of approximately $1.33 to $1.43 in the fourth quarter. We are also raising our full-year 2014 adjusted earnings outlook to approximately $3.50 to $3.60 per diluted share, and our reported earnings outlook to approximately $3.92 to $4.02.

For the full year, we expect to fly approximately 160,000 block hours, with more than 70% in ACMI, approximately 10% in AMC Charter, and the balance in Commercial Charter. Our Dry Leasing segment should show dramatic growth compared with 2013. While our share of military flying, mainly in passenger service, has increased due to our ability to capitalize on additional flying opportunities and a reduction in the number of carriers serving the market, we expect an overall decline in military demand in the fourth quarter of 2014 compared with 2013.

We also expect aircraft maintenance expense to total approximately $190 to $195 million in 2014, primarily due to performing several conditions-based engine overhauls for our 747-400 fleet during the fourth quarter. Depreciation this year is anticipated to total approximately $120 million, and core capital expenditures are expected to total about $30 to $35 million, mainly for spare parts for our expanded fleet.

We remain confident in the resilience of our business model, as well as our ability to adapt to the market and to leverage the scale and efficiencies in our operations. The business initiatives we have undertaken and the investments we have made have enabled the company to deliver meaningful earnings in any environment.

With a resilient business model, a superior fleet, strong customer relationships, and outstanding employees, we are well-positioned to capitalize on market improvements and to continue to focus on the long-term growth of our business.