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United Airlines (UAL) Beats on Q2 Earnings, Tweaks '19 View

Zacks Equity Research

United Airlines Holdings Inc’s UAL second-quarter 2019 earnings (excluding 19 cents from non-recurring items) of $4.21 per share surpassed the Zacks Consensus Estimate of $4.07. Moreover, the bottom line improved more than 30% year over year, mainly on lower fuel costs.

Also, operating revenues increased 5.8% to $11,402 million in the quarter and beat the Zacks Consensus Estimate of $11,358.5 million as well. Higher passenger revenues drove the top line.

Passenger revenues, accounting for bulk (92%) of the top line, rose 6.1%, highlighting strong demand for air travel. Cargo revenues representing 2.6% of the top line declined 6.1%. Revenues from other sources accounted for the remainder.

United Airlines Holdings Inc Price, Consensus and EPS Surprise


United Airlines Holdings Inc Price, Consensus and EPS Surprise

United Airlines Holdings Inc price-consensus-eps-surprise-chart | United Airlines Holdings Inc Quote

Operating Results

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) climbed 2.5% year over year to 14.32 cents. Total revenue per available seat mile inched up 2.2% year over year to 15.57 cents. On a consolidated basis, average yield per revenue passenger mile ascended 1% from the year-ago quarter.

During the quarter under review, consolidated airline traffic — measured in revenue passenger miles — augmented 5.1% year over year. Capacity (or available seat miles) expanded 3.6%. Consolidated load factor (percentage of seat occupancy) improved 120 basis points to 86% as traffic growth outweighed capacity expansion. Meanwhile, average fuel price per gallon (on a consolidated basis) decreased 4.4% year over year to $2.16.

Total operating expenses increased 3.1% year over year to $9,930 million in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses, profit sharing and special charges — inched up 0.6% year over year. However, total unit costs slipped 0.4% year over year.

United Airlines exited the second quarter with cash and cash equivalents of $3,221 million compared with $1,694 million at 2018 end. Long-term debt at the end of the reported quarter was $12,938 million compared with $12,215 million at the end of last year. Furthermore, the carrier bought back $536 million shares in the April-June period on average price of $84.07 per share. The company’s board has authorized a new buyback program worth $3 billion.

Q3 Outlook

For third-quarter 2019, United Airlines anticipates capacity to expand between 2% and 3% while pre-tax margin (adjusted) is estimated in the 10-12% range. Passenger unit revenues are projected to rise 0.5-2.5% year over year.

Meanwhile, consolidated average aircraft fuel price per gallon is predicted between $2.12 and $2.22. Consolidated CASM excluding fuel, third-party business expenses, profit sharing and special charges, is expected to inch up 1-2% in the third quarter. Effective income tax rate for the Jul-Sep period is likely to be in the 21-23% band.

Full-Year View

United Airlines now projects 2019 earnings between $10.5 and $12 per share (prior view: $10-$12). The mid-point — $11.25 — of the guided range is marginally above the Zacks Consensus Estimate of $11.2. Additionally, effective income tax is reiterated in the 21-23% band for the current year. Adjusted capital expenditures are forecast to be approximately $4.9 billion in the year.

The company has trimmed its current-year capacity outlook for the second time. The same is now envisioned to expand 3-4% year over year compared with the earlier expectation of 4-5% increase. Initially in January, the airline anticipated the metric to rise in the 4-6% band. The company’s decision to successively slash its capacity growth forecast could be due to the prolonged grounding of Boeing 737 MAX jets. Meanwhile, adjusted non-fuel unit costs are predicted to rise in the 0.5-1% range.

Zacks Rank

United Airlines sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting second-quarter 2019 earnings reports from key players like Southwest Airlines LUV, American Airlines AAL and Alaska Air Group ALK. Each of the carriers is scheduled to report quarterly earnings on Jul 25.

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