United Continental Holdings Inc.’s (UAL - Free Report) second-quarter 2016 earnings (on an adjusted basis) of $2.61 per share beat the Zacks Consensus Estimate by 8 cents. Earnings, however, declined 21.1% on a year-over-year basis owing to lower revenues.
Operating revenues of $9.4 billion in the second quarter edged past the Zacks Consensus Estimate of $9.38 billion. However, revenues declined 5.2% on a year-over-year basis. Decline in revenues was due to a strong U.S. dollar, lower surcharge, drop in customer travel due to low oil prices, and competitive actions.
Operating Results
Consolidated passenger revenue per available seat mile (PRASM or unit revenue) declined 6.6% year over year. Yield on a consolidated basis declined 6.1% from the second quarter of 2015. Passenger revenues declined 6.3% to $6,525 million. Cargo revenues were down 9.2% while other revenues improved 7.5% in the second quarter. During the reported quarter, airline traffic, measured in revenue passenger miles, decreased 0.5% year over year on a consolidated basis while capacity (or available seat miles) grew 0.1%, leading to a 40 basis point decline in load factor (percentage of seats filled with passengers) to 83.5%. Average fuel price (on a consolidated basis) per gallon, excluding hedge losses, declined 28.8% on a year-over-year basis to $1.41.
Total operating expenses, excluding special items, declined 6.1% year over year. Consolidated unit cost, or cost per available seat mile (CASM), excluding fuel, third-party business expenses and profit sharing, increased 2.5% year over year.
Liquidity
As of Jun 30, 2016, United Continental had $6 billion of unrestricted liquidity, which included $1.35 billion of undrawn commitments under its revolving credit facility. The carrier generated $1.8 billion of free cash flow in the quarter under review.
Stock Purchase Update
During the quarter, the company bought back approximately $694 million worth of shares. As of Jun 30, the company had $255 million remaining under its existing share repurchase program.
Additionally, the company’s board of directors approved a new repurchase program worth $2 billion which represents 13% of its market capitalization as per closing share price on Jul 18, 2016.
Q3 Guidance
United Continental issued its guidance for the third quarter. It expects consolidated PRASM to decline in the range of 5.5%–7.5%. Consolidated capacity is projected to increase 1.5%–2.5% in the third quarter. Effective income tax rate should be 37%. Fuel price, including all cash settled hedges, is estimated in the band of $1.48 to $1.53 per gallon. The company expects pre-tax margin in the range of 13.5%–15.5%.
Zacks Rank & Key Picks
United Continental carries a Zacks Rank #5 (Strong Sell). Better-ranked airline stocks include Cathay Pacific Airways Limited (CPCAY - Free Report) with a Zacks Rank #1 (Strong Buy) and ANA Holdings Inc. (ALNPY - Free Report) and LATAM Airlines Group S.A. with a Zacks Rank #2 (Buy).
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United Continental Holdings Inc.’s (UAL - Free Report) second-quarter 2016 earnings (on an adjusted basis) of $2.61 per share beat the Zacks Consensus Estimate by 8 cents. Earnings, however, declined 21.1% on a year-over-year basis owing to lower revenues.
Operating revenues of $9.4 billion in the second quarter edged past the Zacks Consensus Estimate of $9.38 billion. However, revenues declined 5.2% on a year-over-year basis. Decline in revenues was due to a strong U.S. dollar, lower surcharge, drop in customer travel due to low oil prices, and competitive actions.
Operating Results
Consolidated passenger revenue per available seat mile (PRASM or unit revenue) declined 6.6% year over year. Yield on a consolidated basis declined 6.1% from the second quarter of 2015. Passenger revenues declined 6.3% to $6,525 million. Cargo revenues were down 9.2% while other revenues improved 7.5% in the second quarter. During the reported quarter, airline traffic, measured in revenue passenger miles, decreased 0.5% year over year on a consolidated basis while capacity (or available seat miles) grew 0.1%, leading to a 40 basis point decline in load factor (percentage of seats filled with passengers) to 83.5%. Average fuel price (on a consolidated basis) per gallon, excluding hedge losses, declined 28.8% on a year-over-year basis to $1.41.
Total operating expenses, excluding special items, declined 6.1% year over year. Consolidated unit cost, or cost per available seat mile (CASM), excluding fuel, third-party business expenses and profit sharing, increased 2.5% year over year.
Liquidity
As of Jun 30, 2016, United Continental had $6 billion of unrestricted liquidity, which included $1.35 billion of undrawn commitments under its revolving credit facility. The carrier generated $1.8 billion of free cash flow in the quarter under review.
Stock Purchase Update
During the quarter, the company bought back approximately $694 million worth of shares. As of Jun 30, the company had $255 million remaining under its existing share repurchase program.
Additionally, the company’s board of directors approved a new repurchase program worth $2 billion which represents 13% of its market capitalization as per closing share price on Jul 18, 2016.
Q3 Guidance
United Continental issued its guidance for the third quarter. It expects consolidated PRASM to decline in the range of 5.5%–7.5%. Consolidated capacity is projected to increase 1.5%–2.5% in the third quarter. Effective income tax rate should be 37%. Fuel price, including all cash settled hedges, is estimated in the band of $1.48 to $1.53 per gallon. The company expects pre-tax margin in the range of 13.5%–15.5%.
Zacks Rank & Key Picks
United Continental carries a Zacks Rank #5 (Strong Sell). Better-ranked airline stocks include Cathay Pacific Airways Limited (CPCAY - Free Report) with a Zacks Rank #1 (Strong Buy) and ANA Holdings Inc. (ALNPY - Free Report) and LATAM Airlines Group S.A. with a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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