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United Airlines (UAL) Up on Q3 Earnings Beat, Raised EPS View

Zacks Equity Research

United Airlines Holdings Inc’s UAL third-quarter 2019 earnings (excluding 8 cents from non-recurring items) of $4.07 per share surpassed the Zacks Consensus Estimate of $3.94. Moreover, the bottom line improved 33% year over year, mainly on lower fuel costs.

The earnings beat coupled with the carrier’s raised earnings outlook for 2019 led to a gain of 1.4% in the company’s shares during after-hours trading on Oct 15.

The carrier now anticipates 2019 adjusted earnings between $11.25 and $12.25 compared with $10.5-$12 expected previously. The mid-point of the guided range — $11.75 — slightly falls short of the Zacks Consensus Estimate of $11.81. It is to be noted that, the company had lifted its full-year earnings view during second-quarter earnings release as well.

The successive guidance boost despite numerous flight cancellations due to the MAX grounding issues reflects the carrier’s ability to overcome such setbacks, courtesy of strong travel demand and modest fuel prices. Additionally, the company hopes to achieve or even surpass its 2020 earnings projection of $11-$13 per share.
Coming back to the airline’s earnings results, although operating revenues of $11,380 million increased 3.4% year over year, it missed the Zacks Consensus Estimate of $11428.2 million. Higher passenger revenues drove the top line.

Passenger revenues, accounting for bulk (92.1%) of the top line, rose 3.6% year over year. However, cargo revenues representing 2.5% of the top line declined 4.7%. Revenues from other sources contributed to 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) inched up 1.7% year over year to 13.96 cents. Total revenue per available seat mile increased 1.5% year over year to 15.16 cents. On a consolidated basis, average yield per revenue passenger mile ascended 1.6% from the year-ago quarter.

During the quarter under review, consolidated airline traffic — measured in revenue passenger miles — climbed 1.9% year over year. Capacity (or available seat miles) also expanded 1.9%. Consolidated load factor (percentage of seat occupancy) improved 10 basis points to 86.1% as traffic growth outweighed capacity expansion. Meanwhile, average fuel price per gallon (on a consolidated basis) decreased 12.9% year over year to $2.02.

Total adjusted operating expenses increased 4.1% year over year to $7,361 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 was up 2.1% year over year. However, total unit costs slipped 0.9% year over year.

United Airlines exited the third quarter with cash and cash equivalents of $2,959 million compared with $1,694 million at 2018 end. Long-term debt at the end of the reported quarter was $12,900 million compared with $12,215 million at the end of last year. Furthermore, the carrier bought back $363 million shares in the July-September period on average price of $88.22 per share.

Q4 Outlook

Capacity is estimated to expand approximately 3% year over year. Adjusted pre-tax margin is predicted in the range of 7-9%. Meanwhile, PRASM is forecast to either remain flat year over year or increase up to 2%. Adjusted non-fuel unit costs are predicted to rise nearly 3.5%. Average fuel price per gallon is estimated in the band of $1.99-$ 2.09. Additionally, effective income tax rate is anticipated between 22% and 24%.

Full-Year Outlook

Capacity is estimated to increase approximately 3.5% year over year in 2019. Adjusted non-fuel unit costs are envisioned to inch up nearly 1.2%. Additionally, effective income tax rate is anticipated between 22% and 24%. Adjusted capital expenditures are expected to be approximately $4.9 billion in the current year.

Zacks Rank

United Airlines carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting third-quarter 2019 earnings reports from key players like Southwest Airlines LUV, Alaska Air Group ALK and JetBlue Airways Corporation JBLU. While JetBlue will release financial results on Oct 22, Southwest and Alaska Air Group will report earnings numbers on Oct 24.

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