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Sabre (SABR) Q4 Earnings Top Estimates, Revenues Up Y/Y

Zacks Equity Research

Sabre Corporation SABR reported fourth-quarter 2018 adjusted earnings per share (EPS) of 34 cents, which increased 6.3% on a year-over-year basis, and surpassed the Zacks Consensus Estimate of 33 cents.

Revenues came in at $923.9 million, up 4.8% from the year-ago quarter. The figure, however, lagged the consensus estimate of $927 million.

The company gained from cost-saving initiatives and continued customer growth in the Travel Network segment.

However, increased technology costs along with higher incentive fee were overhangs on margins.

For the full year, revenues increased 7.5% to $3.87 billion. Adjusted EPS also grew 10% to $1.54.

Revenue Details

Travel Network revenues increased 7.5% year over year to $665.2 million. The growth was backed by 7.9% increase in transaction revenues. Increase of 4% in bookings and 3% rise in booking fees drove results for this segment. Positive impact from customer pricing in Europe drove growth in booking fee.

In Asia Pacific, bookings grew around 9% backed by strong market growth and completion of the Flight Centre agency conversion. Bookings in North America and EMEA increased 6% and 2%, respectively, driven by large global travel management companies, including the expansion of Sabre’s agreement with CWT. However, unfavorable economic factors resulted in a decline in Latin American bookings.

Airline Solutions revenues for the quarter came in at $201.9 million, marking a decrease of 1.7% from the year-ago quarter. The decline was the result of a negative impact of $7 million due to the adoption of ASC 606. AirVision and AirCentre revenues decreased in mid-single digits due to the same reason.

Revenues at SabreSonic Passenger Reservation System declined 1% year over year. The conclusion of its implementation at LATAM Airlines was offset by a fall in SabreSonic PB rate.

Hospitality Solutions revenues grew 3.8% year over year to $66.7 million, driven by 8% growth in SynXis software and services revenues. The rise was partially offset by a $2 million decrease in project-based digital marketing services revenues.

Margin Details

Adjusted gross profit came in at $365.4 million, up 1.6% from the year-ago quarter. Adjusted gross margin, however, declined 120 basis points (bps) to 39.5% due to increased technology costs and Travel Network incentives.

Adjusted operating income increased 2.1% to $157.9 million. Adjusted operating margin of 17.1% fell 40 bps.

Adjusted operating income for the Travel Network increased 2% on the back of strong revenue growth as well as cost reduction and business alignment program benefits. However, increase in incentive-related expenses, technology costs, lower third-party service credits dampened the results. However, headcount-related expenses were leveraged by one point of pressure due to the company’s cost-reduction efforts.

Adjusted operating income for Airline Solutions decreased 32.9% due to the negative impact of the adoption of ASC 606 and lower third-party service credits.

There was 11.5% growth in adjusted operating income of Hospitality Solutions due to shift of revenue mix toward higher-margin recurring revenues, among others. However, D&A grew 10% from the prior-year quarter.

Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $509.3 million compared with $444.3 million in the previous quarter.

Cash provided by operating activities increased 6.9% to $724.8 million for the year ending Dec 31, 2018.

Free cash flow was $110.3 million for the fourth quarter.

In the full year of 2018, $26 million worth of shares were repurchased. Including dividends, Sabre returned $180 million to shareholders.

Guidance

Sabre provided full-year 2019 guidance. Revenues are expected to be in the range of $4 billion to $4.1 billion, indicating 4% to 6% growth.

Total technology costs are expected to grow 3% to 4%, and free cash flow is likely to be approximately $485 million, indicating a 10% year-over-year increase.

Sabre expects continued mid-single-digit growth at Travel Network in 2019, despite an expected slowdown of the global travel economy.

Hospitality Solutions revenues are expected to rise 7-9% in the year, with double-digit growth from new and existing customers. However, the company expects the impending acquisitions of a few large customers by larger hoteliers to dampen growth.

Sabre, which has already signed agreements with Amazon’s AMZN AWS and Microsoft MSFT and Azure, expects to complete its transition to a cloud-first infrastructure by the end of 2023.

In 2019, growth in compute volumes and higher savings are expected. Annual cost benefit of $100 million is expected in 2024 with the expiration of its contract with DXC Technologies DXC.

Sabre currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Sabre Corporation Price, Consensus and EPS Surprise

Sabre Corporation Price, Consensus and EPS Surprise | Sabre Corporation Quote

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