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How Will United Airlines (UAL) Fare This Earnings Season?

Zacks Equity Research
·5 min read

United Airlines UAL is scheduled to report third-quarter 2020 results on Oct 14, after market close.

The company has a pleasant earnings record with its bottom line having outpaced the Zacks Consensus Estimate in three of the last four quarters (missing the mark in one), the average beat being 5.9%.

United Airlines Holdings Inc Price and EPS Surprise

United Airlines Holdings Inc Price and EPS Surprise
United Airlines Holdings Inc Price and EPS Surprise

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

For the to-be-reported quarter, estimate revision for the bottom line does not represent a rosy picture. Notably, The Zacks Consensus Estimate for third-quarter bottom line has widened to a loss of $7.73 per share from $5.9 loss 90 days ago.

Against this backdrop, let’s delve deeper to dig up the factors that might have impacted United Airlines’ performance in the September quarter.

Similar to the second quarter, United Airlines’ third-quarter performance is likely to have been dented by coronavirus-induced weak passenger revenues as air-travel demand remains tepid. The spike in coronavirus cases in some parts of the United States during the three-month period under consideration (July-September) is likely to have affected the already soft air-travel demand, thereby hurting passenger revenues further.

Reflecting the prevalent gloomy scenario, the Zacks Consensus Estimate for passenger revenues indicates an 82.7% plunge from the number reported in the year-ago quarter. To compensate for the extremely tepid air-travel demand scenario, the carrier is trimming its capacity. The Zacks Consensus Estimate for consolidated available seat miles (a measure of capacity) indicates a 66.4% slump from the number reported in the year-earlier quarter. However, the Zacks Consensus Estimate for traffic (measured in revenue passenger miles) implies an 81.3% decline from the prior-year reported figure.

With traffic declining more rapidly than capacity contractions, load factor (% of seats filled by passengers) is likely to have taken a beating in the third quarter. Notably, the Zacks Consensus Estimate for United Airlines’ third-quarter consolidated passenger load factor stands at a dismal 47.47%, hinting at a sharp drop from 86% reported in third-quarter 2019. For the third quarter, the carrier anticipates passenger revenues to fall approximately 85%. Additionally, capacity is expected to decrease approximately 70% in the September quarter

Due to passenger revenue weakness, the company’s performance with respect to passenger revenues per available seat miles (PRASM: a key measure of unit revenues) is likely to have been deteriorating as well. Notably, the Zacks Consensus Estimate for third-quarter passenger revenues per available seat miles (PRASM: a key measure of unit revenues) stands at 7.21 cents, suggesting a 48.4% reduction from the figure reported a year ago.

However, fuel prices are still below the year-ago levels despite the recent uptrend. Given this backdrop, modest fuel prices might reflect on United Airlines’ bottom line. Notably, the Zacks Consensus Estimate for average fuel price per gallon (adjusted) suggests a 34.2% drop from the figure reported in the September quarter of 2019. Moreover, with a significant portion of the fleet remaining grounded or under-utilized due to the coronavirus-triggered bleak demand scenario, the carrier’s fuel gallon consumption is likely to have been moderate in the September quarter, thereby reducing its fuel expenditure. This, in turn, might have boosted the airline’s bottom-line performance.

Another likely bright spot is the performance with respect to its cargo revenues as the carrier is operating cargo-only flights in the wake of waning passenger revenues.  Notably, the Zacks Consensus Estimate for cargo revenues indicates a 27% rise from the figure reported in the September quarter of 2019.

What Does the Zacks Model Unveil?

The proven Zacks model does not predict a bottom-line beat for United Airlines this time around. Notably, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive earnings surprise. However, this is not the case as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: United Airlines has an Earnings ESP of +0.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: United Airlines carries a Zacks Rank #4 (Sell), currently.

Highlights of Q2

In the last reported quarter, the company incurred a loss (excluding $3.52 from non-recurring items) of $9.31 per share, comparing unfavorably with the Zacks Consensus Estimate of a loss of $9.13. Even though operating revenues of $1,475 million plummeted 87.1% year over year, the same beat the Zacks Consensus Estimate of $1,217 million.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Union Pacific Corporation UNP, J.B. Hunt Transport Services JBHT and Norfolk Southern Corporation NSC as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Union Pacific has an Earnings ESP of +2.05% and is Zacks #3 Ranked, presently. The company will release third-quarter 2020 results on Oct 22.

J.B. Hunt has an Earnings ESP of +5.16% and a Zacks Rank #2 at present. The company will release third-quarter 2020 results on Oct 16.

Norfolk Southern has an Earnings ESP of +1.99% and a Zacks Rank #3, currently. The company will release third-quarter 2020 results on Oct 28.

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Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
 
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