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Weak domestic sales weigh down earnings at Orbitz

by Jason M. Breslow
May 07, 2008

Despite strong international growth, Orbitz Worldwide Inc. posted a wider net loss in the first quarter due partly to a drop in domestic bookings and a rise in operating expenses.

The online travel site’s loss of $15 million, or 18 cents per diluted share, for the quarter ended March 31 stretched the company’s loss of $10 million for the year-earlier period. Earnings per diluted share for the year-earlier period were not provided by the Chicago-based business, which is partly owned by Elk Grove Village-based UAL Corp., parent of United Airlines.  Orbitz went public last July. 

Analysts had been expecting earnings of five cents per share, according to Zacks Investment Research Inc.

Revenues increased 3 percent, to $219 million from $212 million. Total operating expenses went up by 8.4 percent, to $220 million. More than three-fourths of revenues were generated by domestic bookings, which fell by 6 percent in the first quarter. International bookings, helped by the weak dollar, were up 41 percent.

However, "maintaining the current level of international growth may prove challenging if the foreign exchange benefit erodes and the world economy follows the US into recession," according to a research note by Vance Edelson, an analyst at New York- based Morgan Stanley & Co. Inc. Edelson, who gives Orbitz an "equal-weight" rating, says the company "may be viewed as a wait-and-see story in the near term." 

“We knew going into the quarter … that maintaining our growth against the strong results we achieved in 2007 would be challenging,” said President and Chief Executive Officer Steven Barnhart in a Wednesday conference call with analysts. “Our results were consistent with those expectations,” he added.

Overall, Orbitz’s first quarter “looked pretty lackluster,” according to Domenic LaCava, an analyst with Boston-based Canaccord Adams Inc. LaCava, which gives Orbitz a “sell” rating, said the company has lost market share to its Washington-based competitor Expedia Inc., and that it could be further hurt by the impact fuel prices are expected to have on the critical summer travel season.

“My guess is that as the consumer gets more pinched, some expenses are going to get paired back, and that includes travel,” LaCava said.

Barnhart said he expected the first quarter to be the weakest quarter for Orbitz in 2008, but that the company is planning to launch several new initiatives over the coming months aimed at boosting both top- and bottom-line growth.

Among those initiatives are a new advertising campaign designed to draw users to, as well as the introduction of new site functions. One such function outlined by Barnhart is a feature that will allow users to search for a vacation destination not based on where they want to go, but according to what type of experience they hope to achieve.

Second-quarter earnings are estimated to be 11 cents per diluted share, according to Zacks. The full-year 2008 estimate is 52 cents per diluted share. Earnings per share for the period from July 2007, when the company went public, to December 31 was 51 cents per diluted share.

Orbitz shares closed Wednesday at $7.81, down 12 cents or 1.51 percent from the previous day's close of $7.93