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United (UAL) Down 13.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for United Airlines (UAL). Shares have lost about 13.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is United due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at United Airlines in Q2

United Airlines' 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.

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). 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 11.61% due to these changes.

VGM Scores

Currently, United has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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