Air Trans Services Group (NASDAQ:ATSG)

ATSG said that it expects to recognize non-cash charges related to the termination of its current credit facility, and report a loss in its ACMI Services segment in the first quarter primarily due to maintenance-related aircraft downtime that resulted in lower than budgeted revenues and higher than budgeted operating expenses. As a result, ATSG currently expects to report net earnings of $0.03 or $0.04 per diluted share for the first quarter of 2011.

Note: Non GAAP estimates are $0.10-$0.11

First Quarter Financial Summary: (From May 10, 2010)

• Revenues from continuing operations of $160.9 million for the first quarter of 2010, compared with $211.8 million a year ago. Revenues increased 11.7 percent excluding reimbursed operating expenses and non-recurring severance and retention (S&R) payments, and included gains from each of ATSG’s three airlines and its leasing business.
• Pre-tax earnings from continuing operations of $10.8 million, down $2.4 million compared to the first quarter of 2009. Higher pre-tax earnings from ATSG’s operations for DHL and from its aircraft leasing business, CAM, were offset by 2010 losses from ACMI Services and from Other Activities.
• Net earnings, including earnings from discontinued operations, were $7.2 million, or $0.12 per share (diluted) in the first quarter 2010, down from $11.1 million, or $0.18 per share a year earlier. Net earnings from continuing operations were $6.8 million, or $0.11 per share, down from $8.2 million, or $0.13 per share. Net earnings for the first quarter of each year included deferred (non-cash) income tax expense, with nearly all the federal tax amount offset by a reduction in net deferred tax assets. Based on its remaining deferred tax assets, ATSG does not expect to be a cash payer of federal income taxes until 2013.
• $36.7 million in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) from continuing operations, down from $42.1 million in the first quarter of 2009. (EBITDA is a non-GAAP measure of financial performance. A reconciliation of ATSG’s first-quarter EBITDA to GAAP Net Income appears at the end of this press release).
• Cash flow provided by operating activities of $53.4 million, more than double the prior-year quarter amount, due primarily to ABX Air’s receipt of cash payments on amounts receivable from DHL.
• Continued balance sheet strengthening during the quarter, including a $9.1 million reduction in debt, a $23.2 million reduction in post-retirement liabilities, and a $25.5 million increase in cash since December 31, 2009.

Joe Hete, President and CEO of ATSG, said, “Our first-quarter 2010 financial results, excluding ABX Air’s DHL-related operations, improved sharply from January through March, but pre-tax earnings still fell short of acceptable levels for the quarter as a whole. The first quarter results were generated under customer contract terms and a labor cost structure at ABX Air that have changed dramatically, and as such are not representative of ATSG’s anticipated future performance for the rest of 2010.”  

“This was a transitional quarter for us, as we moved to complete the changes to our operations driven by the terms of our recently completed agreements with DHL and the ABX flight crews,” Hete said. “The groundbreaking agreements with DHL will unlock the value of our aircraft assets, and give us greater opportunities to achieve margin improvement through fixed versus cost-plus pricing. At the same time, DHL has our pledge to continue to be a reliable, high-quality air transport partner for years to come. The combined impact of these agreements, along with further operational improvements and cost reductions in our airlines and other businesses, give me confidence that our results will improve significantly as the year progresses.”