Q2/24 FIRST LOOK; BIG LIFT FROM CHARTER & STRONG CURRENT CONDITIONS
THE TD COWEN INSIGHT
Cargojet reported Q2/24 Adjusted EBITDA of $79.1 million, up 6.5% y/y, compared to
TD Cowen/consensus of $76.0 million/$78.7 million. Stronger-than-forecast Charter and Domestic revenue and an outlook that shows optimism (without specifically quantifying) is encouraging and should support a share price that has recently been unnecessarily under pressure, in our view.
Impact: SLIGHTLY POSITIVE
The Domestic and Charter revenue growth, along with 6.5% EBITDA growth demonstrates the resiliency of the business in an environment that remains challenging for many other modes of cargo transportation. We anticipate a conference call focus on understanding existing customer capacity requirements for the balance of the year, the growth opportunities supporting new fleet investments and the factors weighing on Q2 FCF.
Revenue increased 11% y/y to $231 million (TD Cowen/consensus: $229/235 million). Stronger-than-forecast Charter ($33 million vs. TD: $26 million; up 24% y/y) and Domestic network revenue ($89 million vs. TD: $87 million; up 11% y/y) was offset by lower-than- forecast ACMI revenue ($69 million vs. TD Cowen: $73 million; up 7% y/y). The y/y increase in Charter was largely due to the new Great Vision HK Express agreement and an increase in ad hoc charters.
Adjusted EBITDA margin decreased 110 bps y/y to 34.3% (TD Cowen/consensus: 33.1%/33.5%). Adjusted EBITDA margin excluding fuel increased 100 bps y/y to 67.3% (TD Cowen: 65.0%).
FCF of $0.5 million (TD Cowen: $69.2 million). Trade and other payables, and capex drove the lower-than-forecast FCF. Cash earnings were stronger-than-forecast ($66.0 million vs. TD Cowen: $62.6 million).
Fleet Update: There are two B767 aircraft in conversion with both expected to be delivered in 2025. Invested in two B767 feedstock to ensure sufficient capacity for 'future growth opportunities'. No longer have surplus B757 aircraft due reengineering of fleet schedule and new Great Vision agreement. Fleet schedule shows net increase (vs Q1 schedule) of two aircraft (42 vs 40) planned for the end of 2024-2026.
Outlook: Noted increase in Domestic volume and that interest rate reductions are leading to increased discretionary spending, in particular e-commerce. 2024 maintenance capex of $130-140 million (vs. previous range of $140-150 million; TD Cowen: $145 million), growth capex of $40-50 million (vs. previous range of $20-30 million; TD Cowen: $25 million), and proceeds from dispositions of $105 million (vs. previous range of $100-110 million; TD Cowen: $105 million).