Singapore Airlines Ltd’s Latest Earnings: What Investors Should Know

Yesterday, Singapore Airlines Ltd (SGX: C6L) reported its third quarter earnings for its financial year ending 31 March 2017 (FY 2016/17). The reporting period was for 1 October 2016 to 31 December 2016.

Singapore Airlines – which is better known as SIA – probably needs no introduction. The company runs the full-service carrier Singapore Airlines and Silkair and also has low-cost carriers in Scoot and Tigerair. In addition, the company has a majority stake in aero engineer SIA Engineering Company Ltd (SGX: S59). SIA and SIA Engineering are both part of the 30 stocks that make up Singapore’s stock market benchmark, the Straits Times Index  (SGX:^STI).

You can read more about SIA here or catch up with the results from the company’s previous quarter here.

Financial highlights

The following’s a quick take on some of SIA’s latest financial figures:

  1. Revenue for the fiscal third quarter was $3.84 billion, down 2.3% compared to the same quarter in the previous fiscal year.
  2. For the reporting quarter, profit attributable to shareholders was $177.2 million, down 35.5% compared to FY15/16’s third quarter.
  3. Earnings per share (EPS) followed suit with a 36.6% decline from 23.5 cents a year ago to 14.9 cents.
  4. For the reporting quarter, cash flow from operations came in at $257.3 million with capital expenditure clocking in at nearly $1.1 billion. The higher capex resulted in SIA generating negative free cash flow of $816 million, down $351 million from a year ago.
  5. As of 31 December 2016, SIA has $3.1 billion in cash and equivalents and total borrowings of about $1.6 billion. This is a decline from a quarter ago when there was $3.3 billion in cash and equivalents and borrowings of about $1.16 billion.

Like in the previous quarter, SIA recorded a dip in sales, a sharp fall in profit, and negative free cash flow. But, SIA still has a good net cash position on its balance sheet. A strong balance sheet is important for the firm as the airline industry has historically been tough to navigate.

Operational highlights

SIA’s management said that revenue was down due to lower passenger flown revenue in a weak-yield environment.

Operating profit for the parent airline, namely Singapore Airlines, was down around 16.6% to $151 million for the quarter. Meanwhile, SilkAir also experienced lower operating profit; the airline had operating profit of $30 million, down 9% year-on-year. Scoot grew operating profit to $20 million, up from $18 million in the same quarter a year ago. Tigerair’s operating profit was unchanged at $9 million.

As of 31 December 2016, SIA has a fleet of 108 passenger aircraft with an average age of seven years and eight months. Regarding the company’s outlook ahead, SIA’s management team had the following commentary:

“2017 is expected to be another challenging year amid tepid global economic conditions and geopolitical concerns, alongside other market headwinds such as overcapacity and aggressive pricing by competitors. Loads and yields for both the passenger and cargo businesses are projected to remain under pressure.”

The firm also highlighted the potential network benefits from owning different airline brands:

“An expanding, fuel-efficient A350-900 fleet has enabled the addition of more long-haul routes for SIA. At the same time, with a deeper integration between Scoot and Tiger Airways, the Group can capitalise on new opportunities to boost network connectivity and growth in the low-cost airline segment. The Group will maintain vigilance over its costs, and its strong balance sheet positions it well to weather the many challenges ahead.”

SIA’s shares closed at $9.72 each yesterday. At that stock price, SIA has a price-to-earnings ratio of 15.8 and a trailing dividend yield of 3.6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.