United Continental Earnings Miss in Q3

Zacks

The largest U.S. airline – United Continental Holdings Inc. (UAL) – reported third quarter 2013 adjusted earnings of $1.51 per share, much lower than the Zacks Consensus Estimate of $1.64. Comparing year over year, the results improved from $1.35 per share. Consistent progress in customer service, enhancement of operations and aggressive promotional activities aided the company’s year-over-year growth.

Quarterly total revenue improved 3.2% year over year to $10.2 billion. The top line missed the Zacks Consensus Estimate of $10.3 billion. On an annualized basis, Other revenues increased 25.0% and passenger revenues increased 1.6%. Both increases were partially offset by Cargo revenues, which decreased 19.1%.

Operating Statistics

Airlines traffic, measured in revenue passenger miles, dropped 0.3% year over year to 55.9 billion. Capacity (or available seat miles) slid 1.1% year over year to 65.0 billion, while load factor (percentage of seats filled with passengers) improved 70 basis points year over year to 85.9%.

Consolidated passenger revenue per available seat miles (PRASM or unit revenue) increased 2.7% year over year supported by 9.0% growth in Atlantic PRASM, partially offset by a decrease of 9.4% in Pacific PRASM.

Operating Expenses

Total operating expenses, excluding special items, increased 0.1% year over year to $9.7 billion in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding third-party business expense and special items, crept up 2.9% year over year.

Liquidity

At the end of the third quarter, the company had $6.7 billion in unrestricted liquidity, of which $1 billion was in revolving credit facilities. During the quarter, United Continental generated operating cash flow of approximately $237 million and spent approximately $598 million.

Other Airline Stocks

Archrival Delta Air Lines Inc.’s (DAL) third-quarter 2013 adjusted earnings of $1.41 surpassed the Zacks Consensus Estimate of $1.34 while low-cost carrier Southwest Airlines Co.’s (LUV) earnings of 34 cents where also ahead of the Zacks Consensus Estimate of 32 cents.

Our Take

United Continental – which operates with JetBlue Airways Corp. (JBLU) – currently holds a Zacks Rank #4 (Sell rating).

We remain concerned about fluctuating fuel prices, competitive threats, soft cargo demand, and a sluggish global economy. However, we believe that the company will perform better in the coming quarters from its renewed and upgraded jets, domestic and international expansion of network, customer-friendly services and promotional activities.

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