What happened
Shares of JetBlue Airways (JBLU -2.13%) closed 10.2% lower on Tuesday, following the release of the airline operator's second-quarter results. The report itself was solid, but investors came into the release with high hopes for an even stronger performance.
So what
JetBlue's second-quarter operating revenue rose 5% year over year to land at $1.93 billion. Adjusted earnings fell 39% lower, stopping at $0.38 per diluted share. Analysts had been expecting earnings near $0.36 per share on sales of roughly $1.93 billion. At worst, you could call it a mixed quarter.
But analyst firm J.P. Morgan had recently advised its clients that JetBlue was likely to deliver an impressive slate of next-quarter guidance, and the company fell far short of that implied promise. The bank expected a fresh round of fare increases to pave the way toward solid results in the coming quarters. Instead, JetBlue's management painted a picture of flattish increases in revenue per seat and modest capacity growth.
Stormy skies ahead for JetBlue? Image source: Getty Images.
Now what
Rising fuel prices weigh heavily on the company's expansion ambitions. In the longer term, the company hopes to widen its margins thanks to disciplined cost controls -- but that effort will take a while and is swimming upstream until fuel prices stabilize again.
The stock has now plunged 24% lower over the past 52 weeks, and JetBlue is trading at a huge discount compared to the price-to-earnings or EV/EBITDA ratios of its industry peers. In short, the stock is priced for disaster even though revenue is on the rise and JetBlue is taking steps to get its bottom-line profits back on track. This knee-jerk reaction to modest guidance targets seems wrong to me.
