Cargojet's resilience and growth: Navigating challenges, strategic shifts, co-CEOs

Cargojet , Canada's premier provider of time-sensitive premium air cargo services, has undertaken a dynamic financial journey marked by challenges and strategic adjustments. This comprehensive overview explores Cargojet's recent financial performance, strategic fleet decisions and recent developments, including the appointment of co- chief executives to drive innovation and sustained growth. Financial p erformance , s trategic m easures In its latest quarterly earnings release on Nov . 7 , 2023, Cargojet cited a challenging financial landscape, with earnings per share of $0.22, falling short of consensus estimates by $0.41. Figure 1: Earnings per share 2020-2023 (by quarter)

Despite economic uncertainties, the company reported revenues of $159 million in the third quarter of 2023 , down 8% from $172.9 million in Q3 2022. However, excluding fuel revenues derived from fuel surcharges , revenue grew 1% , increasing from $130.5 million to $132 million in Q3 2023. EBITDA declined by nearly 15% to $52 million in Q3 . However, a strong focus on cash flow resulted in an adjusted free cash flow of $70.2 million in Q3 compared with $35.6 million in Q3 2022 . Figure 2: Total revenue 2020-2023 (by quarter)

In the November earnings call, Ajay Virmani , who was chief executive at the time, highlighted the impact of higher interest rates on household disposable incomes Despite these challenges, the company streamlined operations , optimize d costs and maintain ed an on-time performance of 99.5% for the quarter. Strategy, outlook Cargojet remains committed to delivering value to shareholders, evident in a 1 0 % increase in its cash dividend and a plan to repurchase its common voting shares. The company's disciplined financial approach extends to capital expenditure s , which include abandoning commitments for four B oeing 777 freighters while optimizing its B oeing 767 freighter fleet and placing four Boeing 757-200PCFs up for sale. Looking ahead, Cargojet anticipates challenges in the international air cargo market in the short to medium term , caused by softening demand and increasing fuel prices . The co mpany remains focused on delivering shareholder value by maintaining margins and profitability . To that end, Cargojet extended a cargo partnership with Canadian North to enhance capacity, particularly in northern Canada. The five year extension builds on a 22-year partnership between Cargojet and Canadian North. As part of the agreement , Cargojet will be the exclusive cargo carrier from Winnipeg , Manitoba, and Ottawa , Ontario, to Iqaluit , Nunavut T erri tory. F rom there , Canadian North delivers the material across the Ar c t ic region. . Cargojet also ex tended an agreement with Canada Post and Purolator , a Canada Post subsidiar y that is part of Canada Post Group of Companies . The agreement now runs through September 2029 with an option to renew into 2031 . Cargojet appointed Pauline Dhillon and Jamie Porteous as co-CEOs, effective Jan . 1 . Virmani became executive chair . Dhillon had been chief corporate officer and Porteous had been chief strategy officer. Both have been with Cargojet since its inception 22 years ago . Fleet o ptimization In January , Cargojet announced that it was delaying its entry into the large-widebody freighter segment and forgoing commitments for four 777-200LRMF conversions due to softness in the international air cargo market. In September 2023, Air Canada also announced that it would no longer take delivery of two factory-built 777F s , A motive was not provided but softening air cargo market is likely the driver. Cargojet's withdrawal from commitments for the 777-200LRMFs, for which it was to be the launch customer, mirrors its earlier decision to cancel plans for four 777-300ERSFs . The company is focusing on maximizing the efficiency of its existing fleet of 767Fs and 757Fs. In November 2023, Cargojet said four of its 757-200 freighters were for sale . They were recently converted and will remain in operation as required until a suit o r emerges. Cargojet believes fair market value is CA $ 40 million ( $29.9 mil lion) per aircraft. As of publication, none of the four aircraft has changed hands. Figure 3: Cargojet Fleet

[caption id="attachment_57284161" align="aligncenter" width="667"] Source: Cargo Facts Consulting Analysis of Cargojet Fleet Data[/caption] Cargojet's financial journey reflects adaptability, strategic decision-making and an unwavering commitment to shareholder value. As the company navigates market dynamics, disciplined fiscal management, focus on operational excellence and innovative leadership under the co-CEOs will contribute to its long-term success. Investors and industry observers eagerly await Cargojet’s Q4 earnings update , scheduled for Feb. 26, to provide further insights into Cargojet’s performance and strategic initiatives, anticipated continued resilience and growth in the evolving air cargo landscape.

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Cargojet’s resilience and growth: Navigating challenges, strategic shifts, co-CEOs

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