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United Continental (UAL) Q1 Earnings Top & Rise Y/Y, Stock Up

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United Continental Holdings (UAL - Free Report) reported better-than-expected earnings in first-quarter 2019 and became the second major U.S.-based carrier to do so after Delta Air Lines (DAL - Free Report) on Apr 10.

United Continental’s earnings (excluding 6 cents from non-recurring items) of $1.15 per share surpassed the Zacks Consensus Estimate of 94 cents. Moreover, the bottom line showed a massive year-over-year improvement mainly on lower fuel costs. This outperformance on the earnings front despite headwinds like inclement weather, government shutdown and grounding of Boeing 737 MAX jets seems to have found favor with investors. As a result, the stock gained more than 3% in after-market trading on Apr 16.

Operating revenues came in at $9,589 million, which fell short of the Zacks Consensus Estimate of $9,600 million. The top line, however, increased 6.2% year over year driven by higher passenger revenues.

Passenger revenues, accounting for bulk (91%) of the top line, increased 7.1%, highlighting strong demand for air travel. Cargo revenues, accounting for 3% of the top line, decreased 2.4%. Revenues from other sources accounted for the balance.

Operating Results

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) increased 1.1% year over year to 13.29 cents. Total revenue per available seat mile inched up 0.3% year over year to 14.61 cents. On a consolidated basis, average yield per revenue passenger mile inched up 0.5% from the year-ago quarter.

During the quarter under review, consolidated airline traffic — measured in revenue passenger miles — improved 6.5% year over year. Capacity (or available seat miles) expanded 5.9%. Consolidated load factor (percentage of seat occupancy) increased 50 basis points to 80.9% as traffic growth outweighed capacity expansion. Meanwhile, average fuel price per gallon (on a consolidated basis) declined 2.8% year over year to $2.05.

Total operating expenses increased 3.7% year over year to $9,094 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 — dipped 1.8% year over year. Total unit costs also decreased 2.1% in the quarter.

United Continental exited the first quarter with cash and cash equivalent of $1,848 million compared with $1,694 million at 2018 end.  Long-term debt at the end of the reported quarter was $12,734 million compared with $12,215 million at 2018 end.  Furthermore, the carrier bought back $527 million of its common shares in the January-March period at an average price of $83.68 per share.

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

For second-quarter 2019, United Continental anticipates capacity to expand between 3.5% and 4.5%, while pre-tax margin (adjusted) is estimated in the 11-13% range. Passenger unit revenues are projected to increase 0.5-2.5% year over year.

Meanwhile, consolidated average aircraft fuel price per gallon is envisioned between $2.13 and $2.23. Effective income tax rate for the April-June period is likely to be in the 21-23% band.

Full-Year View

United Continental still expects 2019 earnings between $10 and $12 per share. The mid-point of the guided range ($11 per share) is below the Zacks Consensus Estimate of $11.08. Additionally, effective income tax is anticipated in the 21-23% band for the current year. Adjusted capital expenditures are still forecasted to be approximately $4.7 billion in the year.

Capacity is now estimated to expand 4-5% year over year compared with the 4-6% range predicted earlier. The company’s decision to trim its capacity growth forecast may be due to the grounding of Boeing 737 MAX jets. United Continental, which has 14 of such jets in its fleet, decided to ground them through early July.

Zacks Rank

United Continental 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 first-quarter 2019 earnings reports from key players like JetBlue Airways (JBLU - Free Report) and Southwest Airlines (LUV - Free Report) on Apr 23 and 25, respectively.

 

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