Will United Continental (UAL) Miss Earnings this Quarter? - Analyst Blog
United Continental Holdings, Inc. (UAL), the parent company of United Airlines, will report fourth-quarter 2014 earnings results on Jan 22, before the commencement of trading.
Last quarter, United Continental’s earnings had outpaced the Zacks Consensus Estimate. The results benefited primarily from a reduction in operating expenses.
Will the company be able to beat earnings again? Or will it disappoint this time around? Let us see how things have been shaping up for this announcement.
Factors at Play this Quarter
The company is expected to report revenues of $9.3 billion for the fourth quarter, which is marginally below the figure recorded a year ago. Earlier in the month, the company posted disappointing traffic numbers for Dec 2014. Load factor (percentage of seats filled) declined 1.9% year over year. Traffic improved only 0.1% in the month. The weak traffic numbers might impact results in the fourth quarter.
According to the preliminary results for the fourth quarter released earlier this month, passenger revenue per available seat mile (PRASM a measure of unit revenue) for the final quarter of 2014 are estimated to climb in the band of 0.25%–0.75% on a year-over-year basis. Cargo revenues in the quarter are expected in the range of $250 million and $270 million. Capacity on the domestic front is projected to decline 1.4%.
The carrier also stated that it has spent approximately $2.83 per gallon on jet fuel in the final quarter of the year. This includes 25 cents per gallon of cash-settled hedge losses.
During the quarter, United Continental closed out 2 percentage points of its 2015 hedge positions. Including the early settlement of the hedge positions, the carrier expects approximately $237 million in cash-settled hedge losses in the quarter ($85 million of losses in fuel expense or 9 cents per gallon) and $152 million of losses in non-operating costs.
Notably, earnings estimates for United Continental for the fourth quarter have been on a downward trend. The disappointing traffic numbers for December have been a dampener as well. The Zacks Consensus Estimate has declined 6.7% to $1.11 per share over the last 7 days.
Earnings Whispers?
Our proven model does not conclusively show that United Continental is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Earnings ESP for United Continental is -0.90%. This is because the Most Accurate estimate is $1.10 per share while the Zacks Consensus Estimate is pegged higher at $1.11.
Zacks Rank: United Continental has a Zacks Rank #1 which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
Peer Result
Apart from United Continental, Southwest Airlines Co. (LUV) will also be releasing its fourth quarter earnings on Jan 22, before the commencement of trading.
Stocks to Consider
Here are a few stocks in the airline space that you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Alaska Air Group, Inc. (ALK), the parent company of Alaska Airlines, will unveil its fourth quarter earnings numbers on Jan 22, before market opens. The Seattle, WA-based company carries a Zacks Rank #2 and has an earnings ESP of +3.41%.
Delta Air Lines, Inc. (DAL) has an earnings ESP of +2.67% and a Zacks Rank #1. The company is expected to report fourth-quarter earnings numbers on Jan 20, before market opens.
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