Sell-Side Reaction to Sabre's Q4 Results (TSG)

| About: Sabre Holdings (TSG-OLD)
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Sabre (TSG-OLD), one of the largest players in the online travel market through its ownership of Travelocity and other properties, reported Q4 results yesterday. Excerpt from Stifel Nicholaus analyst Scott Devitt's note to clients:

Reports 4Q Results; Maintain Hold

• Sabre reported 4Q revenue of $620 million and adjusted EPS of $0.22 versus our estimates of $630 million in revenue and $0.18 adjusted EPS. The upside was driven by a tax credit in the quarter.
• Travelocity gross bookings totaled $2 billion for the quarter, up 67% versus 4Q04 results. Revenue was up 86% from the year-ago quarter to $235 million.
• We are lowering our full-year 2006 adjusted EPS estimate from $1.76 to $1.70, and lowering our revenue estimate from $3.0 billion to $2.9 billion. Our 2007 EPS estimate has been decreased from $1.93 to $1.86.
• We are maintaining our $25 fair value estimate, at the high end of the range of our sum-of-the-parts valuation analysis. Sabre shares are rated Hold.

Highlights

Sabre announced 4Q05 results of adjusted EPS of $0.22 and GAAP EPS of $0.09.

Among the highlights during the quarter:

• Announced that US Airways signed a 5-year full content deal with Sabre Travel Network and Travelocity
• Signed a 5-year full content agreement with Northwest Airlines to distribute all of Northwest's published fares and inventory, including Web fares, through the Sabre GDS
• Announced that Travelocity acquired complete ownership of ZUJI, the leading online travel company in the Asia-Pacific region
• Increased the quarterly cash dividend by 11 percent to $0.10 per share payable on Feb. 28, 2006, to shareholders of record at the close of regular trading on the New York Stock Exchange on Feb. 10, 2006

Travelocity

Travelocity gross bookings totaled $2 billion for the quarter, up 67% versus 4Q04 results. Revenue was up 86% from the year-ago quarter to $235 million. North American bookings accounted for about 75% of total bookings. The GAAP operating loss at Travelocity was $24 million. Fourth quarter adjusted operating income was $11 million with an operating margin of 7%, and on a GAAP basis was $9 million with an operating margin of 6%.

North America revenue was $156 million, growth of 28%. Revenue from European operations was $79 million.

The segment's 4Q air transaction revenue grew 45%, while non-air transaction revenue recorded growth of 126% year-over-year, with year-over-year growth of 90% in hotel room nights. Packaging revenues grew 93% year/year and accounted for 24% of revenue.

For full-year 2005, Travelocity saw gross bookings of $7.446 billion, up 51% year/year (including results from both lastminute.com and ZUJI). With 83% of bookings coming from North America. Total revenue was $830 million, showing growth of 65% year/year, with $633 million from North American sales. Adjusted EBITDA was $48 million. North America saw $75 million in EBITDA, though offset by a negative $27 million in European operations. Travelocity more than doubled operating income to $27 million with a 3% operating margin on an adjusted basis. Breaking that down regionally North America grew operating income over 50% to $59 million with an operating margin of over 9% on an adjusted basis and $52 million with an 8% operating margin on a GAAP basis.

For full-year 2005, hotel room nights sold were 12.9 million, up 67% year/year, with total non-air transactions revenue growing 97% year/year. Total packaging revenues were up 98% over 2004, and accounted for 26% of total transaction revenue.