In This Article:
What happened
Shares of Allegiant Travel Co. (NASDAQ: ALGT) climbed 13.4% in April, according to data provided by S&P Global Market Intelligence, despite the company reporting first-quarter results that fell short of expectations. Wall Street was more focused on the company's industry-best margins and healthy outlook for the future than it was on one-time results.
So what
Allegiant shares were up only slightly for the month prior to the company's April 24 earnings release. The company reported first-quarter earnings of $3.52 per share on revenue of $451.6 million. Analysts had expected earnings of $3.87 per share on sales of about $452 million.
Often, such a miss causes investors to head for the emergency exits, but in Allegiant's case, the stock actually rocketed higher post-earnings. Perhaps investors were focused on Allegiant's 20%-plus aviation margins in an industry where 10% or less is the norm. Or they were relieved to see that Allegiant, despite its first-quarter miss relative to expectations, maintained its 2019 earnings-per-share guidance of $13.25 to $14.75, even with increasing jet fuel costs.
Allegiant's planned Sunseeker resort, the source of some contentious discussions on the company's earnings call. Image source: Sunseeker Resorts.
Allegiant's airline operations are benefiting from the company's transition to a fleet of newer, more fuel-efficient Airbus aircraft. Management expects to increase capacity by 7.5% to 9.5% for the year, with a heavy weight toward the year-end holiday travel season.
So what's holding Allegiant earnings back? The company's non-airline projects, including the somewhat contentious Sunseeker resort that Allegiant is constructing in Florida and a chain of family entertainment centers, are in start-up mode and currently consuming cash. Allegiant expects to spend $250 million to $300 million in capital expenditures (capex) on its Sunseeker resort this year and $15 million to $20 million on its other projects.
Now what
There's no questioning the strength of Allegiant's airline operation. But there is one question, for at least some on Wall Street: With the transportation business so strong, should Allegiant be devoting resources to the non-airline businesses? The company's first-quarter earnings call turned somewhat contentious when analyst Duane Pfennigwerth asked about balancing non-airline spending with other priorities, including the company's dividend.
Company president John Redmond responded by first saying, "I must admit I wasn't going to take a question from you just because of how unprofessional and disrespectful you've been in the past, but I'll go ahead and I'll rise up to the occasion." Later, Redmond got into a heated back and forth with Wolfe Research's Hunter Keay over the dimensions of the pool at the Sunseeker and how the resort would be marketed to business and leisure travelers.