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United Continental (UAL) Q1 Earnings Beat, FY18 View Bullish

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United Continental Holdings, Inc. (UAL - Free Report) reported better-than-expected results in the first quarter of 2018. The company’s earnings (excluding 2 cents from non-recurring items) of 50 cents surpassed the Zacks Consensus Estimate of 49 cents. Moreover, the bottom line climbed 25% year over year owing to higher revenues.

Operating revenues of $9,032 million in the first quarter were also ahead of the Zacks Consensus Estimate of $9,012.5 million. Moreover, the top line increased 7.3% year over year. Strong demand for air travel boosted revenues.

Operating Results

The company reported a 2.7% year-over-year rise in consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) to 13.15 cents.

Yield on a consolidated basis inched up 1.7% from the first quarter of 2017 while passenger revenues climbed 6.5% to $8,149 million. Cargo revenues increased 23.1% and other revenues grew 10.3%.

During the reported quarter, consolidated airline traffic measured in revenue passenger miles, improved 4.7% year over year. Capacity (or available seat miles) rose 3.6%. Load factor (percentage of seat occupancy) improved 80 basis points to 80.4% as traffic growth outweighed capacity expansion.  Average fuel price per gallon (on a consolidated basis) escalated 23.4% year over year to $2.11.

Total operating expenses rose 8% year over year to $8,756 million in the period under review. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses, profit sharing and special charges — nudged up 0.6% year over year.

Liquidity

United Continental generated $720 million as free cash flow at the end of the first quarter compared with free cash outflow of $807 million in the prior-year quarter.

United Continental Holdings, Inc. Price, Consensus and EPS Surprise

 

United Continental Holdings, Inc. Price, Consensus and EPS Surprise | United Continental Holdings, Inc. Quote


Q2 Outlook

The company anticipates capacity to expand between 4% and 5% for the second quarter while pre-tax margin is estimated between 9% and 11%. Passenger unit revenues are expected to increase 1-3% year over year. Additionally, the company predicts consolidated cost per available seat mile (CASM), excluding third-party business expenses, fuel & profit sharing, to rise in the range of flat to 1% year over year. Meanwhile, consolidated average aircraft fuel price per gallon is anticipated between $2.18 and $2.23. Effective income tax rate for the quarter is likely to be in the band of 21-22%.

Full-Year Outlook

For 2018, capacity is estimated to increase between 4.5% and 5.5%. Previous forecast was an expansion in the range of 4-6%. The stock’s outperformance coupled with the company’s decision to reduce its 2018 capacity growth guidance pleased investors. As a result, shares of the company were up 2.8% in after-hours trading on Apr 17.

CASM is projected in the range of down 1% to flat year over year. Effective income tax rate is projected at 21-22% in the year.

The company expects adjusted earnings per share to lie in the band of $7-$8.50 for the full year. Earlier, the metric was predicted between $6.50 and $8.50. The upside has been driven by strong first-quarter results and the company’s optimism regarding the remainder of the year. The Zacks Consensus Estimate for current-year earnings is pegged at $7.83.

Zacks Rank & Key Picks

United Continental carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space are Cathay Pacific Airways Ltd. (CPCAY - Free Report) , Ryanair Holdings PLC (RYAAY - Free Report) and SkyWest, Inc. (SKYW - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Cathay Pacific Airways, Ryanair Holdings and SkyWest have rallied more than 16%, 34% and 69%, respectively, in a year.

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