ABX Holdings reports first quarter results

ABX Holdings, Inc. reported first-quarter net earnings of USD 3.8 million, or USD 0.06 per common share, on strong revenue growth to USD 382.1 million, driven both by its acquired airline and air services businesses and its expanded charter fleet of Boeing 767 freighters. In the first quarter of 2007, ABX Holdings earned USD 4.3 million, or USD 0.07 per share, on revenues of USD 288.1 million.
ABX Holdings acquired the businesses of Cargo Holdings International (CHI) at the end of last year. The principal businesses of CHI include two independently certificated airlines, Air Transport International (ATI) and Capital Cargo International Airlines (CCIA), and a leasing company, Cargo Aircraft Management (CAM). Collectively, the CHI businesses contributed approximately USD 75.4 million, or 80pct of the year-over-year increase in ABX Holdings’ first-quarter consolidated revenues. Growth in ABX Air’s businesses, principally its air charter operations, provided the remainder of the revenue gain. The CHI businesses also contributed approximately USD 1.7 million in net earnings during the quarter, net of acquisition-related interest expense.
ABX Holdings’ pre-tax earnings declined to USD 6.2 million in the first quarter from USD 6.9 million a year ago. The decline principally reflects a USD 4.6 million increase in net interest expense associated with financing of acquired businesses and additional aircraft. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) increased 78pct to USD 36.8 million in the first quarter, compared with USD 20.7 million in the year-earlier period (see Reconciliation of EBITDA to GAAP Net Earnings at the end of this release). EBITDA is a non-GAAP measure of financial performance that management believes better reflects the cash-generating performance of asset-intensive, financially leveraged businesses such as ABX Holdings.
Revenues from the two commercial agreements with DHL increased 3 percent to USD 280.8 million for the quarter, as expenses reimbursed without markup (principally fuel costs), increased sharply. Revenues from ACMI Services increased nearly eightfold due to the addition of revenues from the CHI airlines, and growth in ABX Air’s charter fleet. Revenues from all other operations, excluding reimbursed ACMI expenses, increased 6 percent to USD 8.5 million. Pretax earnings were up from the DHL commercial agreements, and lower from ACMI Services and other operations.
Net earnings for the first quarter each year included deferred (non-cash) income tax expense, with the entire federal tax amount offset by a reduction in our net deferred tax assets. ABX expects to record deferred income tax expense in 2008 at approximately 39pct of pre-tax earnings. Remaining deferred tax assets are such that the Company does not expect to be a cash payer of federal income taxes until 2011, or later.
Results Associated with the DHL Segment
ABX Air’s commercial agreements with DHL are an ACMI agreement and a Hub Services agreement. Under each agreement, ABX Air earns a base mark-up of 1.75pct on eligible costs and can earn incremental mark-ups for meeting certain quarterly cost-related goals as well as other annual cost-related and service goals. Any earnings from attainment of annual cost-related and service-related goals are recognized in the fourth quarter.
ABX Air’s pre-tax earnings from its two commercial agreements with DHL increased four percent to USD 4.0 million from USD 3.8 million during the first quarter of 2007. The principal factor was an increase in incremental markup revenues of nearly USD 200,000, driven by improved performance against cost-related goals in both ACMI and Hub Services operations, despite challenging winter weather and other operating conditions in many parts of the country. Base markup revenues were lower in the first quarter, as eligible costs subject to markup declined 10 percent. U.S. network facilities and assets recaptured or removed from service by DHL since the first quarter of 2007 were the principal cause of the reduction.
For the first quarter, ABX Air achieved the maximum level of incremental mark-up possible related to cost goals under the ACMI agreement and 39pct of the maximum, cost-related markup under the Hub Services agreement. In the first quarter of 2007, ABX Air achieved 100pct of its incremental cost-related markup under the ACMI agreement, but did not earn any incremental cost-related markup under its Hub Services agreement.
Results from Non-DHL Operations
ACMI Services Segment
Following the acquisition of CHI, the Charter segment has become the ACMI Services segment, and now includes all of the ACMI and charter services that are provided outside the principal ACMI commercial agreement with DHL. Revenues for that segment increased to USD 63.1 million in the first quarter, excluding reimbursable expenses (principally fuel for ACMI customers) of USD 30.2 million, compared with USD 7.0 million for the first quarter the prior year. Pretax earnings for the segment were USD 1.1 million, down from USD 1.0 million in the first quarter of 2007.
The two former CHI airlines, CCIA and ATI, operated 30 aircraft during the quarter, mostly under ACMI service contracts for customers that include BAX Global Inc., the U.S. military, and DHL for international service. ABX Air generated USD 18.0 million of the ACMI Services revenues, and approximately 20 percent of total ACMI/Charter revenue growth in that segment for the quarter. That growth came mainly from additional Boeing 767 aircraft that ABX Air has deployed with non-DHL customers since the first quarter of 2007.
The charter operations of ABX Air operated at a small loss for the first quarter of 2008 due to higher aircraft maintenance and labor costs. Flight crew wages were negatively impacted during the first quarter of 2008, when ABX Air flight crews decided not to voluntarily bid for extra flying, as is customary. As a result, ABX Air assigned the trips at an additional cost. Additionally, expenses during the quarter included additional flight crew costs associated with ABX Air’s Asian operations, while it completed the set-up of a domicile of flight crews and maintenance employees in Japan.
CAM
Results from Cargo Aircraft Management (CAM) became a separate business segment effective with the first quarter of 2008. CAM’s revenues from aircraft leasing operations were USD 10.1 million during the quarter, and segment earnings were USD 4.3 million. While CAM is expected to grow to serve outside customers, during the first quarter its results were derived from leasing aircraft to airline subsidiaries of the Company, and therefore largely eliminated in consolidated results. CAM expects to add four Boeing 767-200 extended-range aircraft during 2008, two of which will be leased to an outside customer.
Other Business Activities
Other non-DHL revenues increased 6 percent to USD 8.5 million in the first quarter of 2008 compared to the first quarter of 2007, driven by growth in aircraft maintenance services and parts sales. During 2008, margins in this segment declined, due principally to higher non-reimbursed corporate expenses, including expenses related to the CHI acquisition.