Will High Costs Mar Hawaiian Holdings' (HA) Q4 Earnings?

Hawaiian Holdings Inc. (NASDAQ:HA) is slated to release fourth-quarter 2017 earnings numbers on Jan 29, after the market closes.

Last quarter, the company delivered a positive earnings surprise of 3.8%. Also, it has an impressive earnings history, beating the Zacks Consensus Estimate in three of the last four quarters with an average of 6.6%.

However, the company’s results may suffer in the fourth quarter due to high costs. Let's have a detailed look at the factors likely to influence Hawaiian Holdings’s fourth-quarter result.

Unit costs, excluding fuel, are projected to rise significantly in the soon-to-be reported quarter primarily owing to higher labor costs. This, in turn, is likely to hurt the company’s bottom line. Hawaiian Holdings anticipates cost per available seat miles (CASM), excluding fuel and special items, for the fourth quarter to be up 6-7%, higher than the prior prediction of a 3.5-6.5% upsurge. The Zacks Consensus Estimate for fourth-quarter CASM (ex-fuel) is pegged at $9.60, much higher than $8.80 in the preceding quarter.

Also, rising fuel costs are likely to hurt the bottom line. The Zacks Consensus Estimate for fourth-quarter fuel cost per gallon stands at $1.80, much higher than the year-ago figure of $1.55. The carrier expects gallons of jet fuel consumed to increase by 7.5-8.5% for the quarter to be reported, up from 5-8% rise forecasted earlier. The revision can be attributed to higher-than-expected payloads.

However, the carrier’s performance with respect to unit revenues is encouraging. The metric is expected to register substantial year-over-year growth in the fourth quarter. The Zacks Consensus Estimate for fourth-quarter passenger revenue per available seat mile (PRASM) is pegged at 12.23 cents, higher than 12.13 cents in the year-ago quarter.

Moreover, on the fourth-quarter conference call, we expect a commentary on Southwest Airlines’ (NYSE:LUV) decision to start flights to Hawaii. This is because Southwest’s entry will intensify competition for Hawaiian Holdings. Since growth is supported by strong demand for air travel to Hawaii, its stock price might be hurt significantly owing to decline in the company’s market share.

What Does our Model Say?

Our proven model does not conclusively show that Hawaiian Holdings is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Zacks ESP: Hawaiian Holdings has an Earnings ESP of -0.63% as the Most Accurate estimate is pegged at $1.09, marginally lower than the Zacks Consensus Estimate of $1.10. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hawaiian Holdings carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. Thus, a negative Earnings ESP in this case leaves the surprise prediction inconclusive.

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

Hawaiian Holdings, Inc. Price and EPS Surprise

Hawaiian Holdings, Inc. Price and EPS Surprise | Hawaiian Holdings, Inc. Quote

Stocks to Consider

Investors interested in the broader Transportation sector may consider Union Pacific Corporation (NYSE:UNP) and SkyWest (NASDAQ:SKYW) as they possess the right combination of elements to report better-than-expected earnings per share in the fourth quarter of 2017.

Union Pacific has an Earnings ESP of +0.47% with a favorable Zacks Rank #1. The company will report fourth-quarter earnings numbers on Jan 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest has an Earnings ESP of +7.80% and a Zacks Rank #1. The company will release fourth-quarter 2017 results on Feb 1.

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