United Continental (UAL) Declines Despite Q4 Earnings Beat
United Continental Holdings Inc.’s UAL fourth-quarter 2016 earnings (on an adjusted basis) of $1.78 per share beat the Zacks Consensus Estimate by 13 cents. The bottom line, however, plunged 29.9% year over year due to higher costs.
In the fourth quarter, the company paid $487 million as income tax, a massive increase from the $82 million paid in the year-ago quarter. This severely affected the bottom line. Naturally, investors were disappointed by the year-over-year decline in earnings. Consequently, the stock lost value in after-market trading on Jan 17.
Operating revenues of $9,052 million in the fourth quarter were just short of the Zacks Consensus Estimate of $9,059.4 million. Revenues increased marginally on a year-over-year basis.
Operating Results
Consolidated passenger revenue per available seat mile (PRASM or unit revenues) declined 1.6% year over year to 12.41 cents. Yield on a consolidated basis declined 1.2% from the fourth quarter of 2015, while passenger revenues increased marginally to $7,761 million. Cargo revenues increased 8.2% and other revenues dipped 3.3% in the same time frame. During the reported quarter, airline traffic measured in revenue passenger miles, which improved 1.6% year over year on a consolidated basis. Capacity (or available seat miles) grew 2% and led to a 30 basis point decline in load factor (percentage of seats filled with passengers) to 82.4%, as capacity expansion outweighed traffic growth. Average fuel price (on a consolidated basis) per gallon, excluding hedge losses increased 5.3% year over year to $1.6.
Total operating expenses, excluding special items grew 3.2% year over year to $8.1 billion. Consolidated unit cost or cost per available seat mile (CASM) – excluding fuel, third-party business expenses and profit sharing – increased 4.1% year over year, primarily due to the labor deals ratified.
United Continental Holdings, Inc. Price, Consensus and EPS Surprise
United Continental Holdings, Inc. Price, Consensus and EPS Surprise | United Continental Holdings, Inc. Quote
Liquidity
United Continental exited the quarter with $5.8 billion in unrestricted liquidity, which included $1.35 billion of undrawn commitments under its revolving credit facility. The carrier generated $658 million in operating cash flow in the quarter under review. Free cash flow at the end of the quarter was $420 million. The metric at the end of 2016 was $2.2 billion.
Guidance
United Continental expects consolidated PRASM in the band of a decrease of 1% to an increase of 1% in the first quarter of 2017. We note that United Continental is not the only company to have come out with bullish unit revenue guidance. Its peers like Delta Air Lines DAL and American Airlines Group AAL are also bullish on the metric, as they strive to return to unit revenue growth.
Consolidated capacity is projected to increase in the range of 1–2% in the first quarter of 2017. Capacity for 2017 was also projected to expand in the range of 1–2%. The company expects pre-tax margin (adjusted) in the range of 0.5–2.5% in the first quarter of 2017. Unit costs in the first quarter are projected to increase in the band of 4.5% to 5.5% due to higher labor costs.
Annual Results
For full-year 2016, the company’s earnings came in at $8.65 per share while revenues were $36.6 billion. The Zacks Consensus Estimate was of earnings of $8.55 per share on revenues of $36.6 billion.
For full-year 2016, the carrier bought back $2.6 billion of its common stock. As of Dec. 31, 2016, the company had $1.8 billion remaining under its current buyback program. In 2016, the carrier returned $628 million to employees via profit sharing.
Other Important Releases Coming Up
Investors in the airline space will now keenly await the fourth-quarter earnings reports of Hawaiian Holdings Inc. HA (on Jan 24), JetBlue Airways Corp. (on Jan 26) and American Airlines Group (on Jan 27).
Zacks Rank
United Continental currently carries a Zacks Rank # 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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