Overview: United Continental Holdings' 2Q earnings (Part 10 of 11)
United’s returns to investors
The increase in United’s share price has provided returns to shareholders in the form of capital appreciation. Share price has increased by 13% in the first half of the year to $42.9 on August 8 compared to $37.73 at the beginning of the year. Over a period of one and a half years, United’s share price increased by 77% from $24.19 at the beginning of 2013.
Planned share repurchase program
Apart from this, United has planned a $1 billion share repurchase program—6% of its market capitalization—that will be completed within the next three years. Out of this, $200 million worth of repurchases are planned for the next three months. Share buy-backs are considered by companies when the shares are undervalued and the company has enough cash to invest in its own share to reduce the number of outstanding shares and increase earnings per share (or EPS). The share repurchase program reflects the management’s confidence in increasing its earnings potential. However, the company is still evaluating the possibility of declaring dividend. Dividends are more regular than share buy-backs. As a result, companies declare dividends only when they’re confident of sustaining the earnings potential on an on-going basis. In 2013, except for Delta Air Lines (DAL) and Southwest (LUV), none of the other leading U.S. airlines including American (AAL), United (UAL), or JetBlue (JBLU) declared dividend.
Free cash flow
Free cash flow is the cash available to creditors and shareholders. It’s calculated as cash generated from operations after deducting the capital expenditure required for future expansion plans. United’s free cash flow calculated as operating cash flow minus capital expenditure increased by 67% in 1H14 driven by a 40% increase in operating cash flow to $2,158. Apart from capital expenditure, the cash flow from operations were also used for short-term investments and debt repayments.
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