United Continental Holdings Inc.’s (UAL - Free Report) third-quarter 2016 earnings (on an adjusted basis) of $3.11 per share beat the Zacks Consensus Estimate by 6 cents. The bottom line, however, plunged 31.35% year over year owing to lower revenues.
Operating revenues of $9,913 million in the third quarter edged past the Zacks Consensus Estimate of $9,899 million. However, revenues decreased 3.8% on a year-over-year basis. The decline in revenues can be attributed to a stronger U.S. dollar, lower surcharges, reductions in energy-related corporate travel, and soft yields. Notably, low air fares have been hurting the entire airline industry for quite some time.
During the quarter, the company bought back approximately $255 million worth of shares. As of Jun 30, the company had $2 billion remaining under its existing share repurchase program.
Consolidated passenger revenue per available seat mile (PRASM or unit revenue) declined 5.8% year over year to 12.64 cents. Yield on a consolidated basis declined 5.7% from the second quarter of 2015. Passenger revenues fell 4% to $8,603 million. Cargo revenues were down 4.7%, while other revenues dipped 2.3% in the third quarter. During the reported quarter, airline traffic, measured in revenue passenger miles, improved 1.8% year over year on a consolidated basis. Capacity (or available seat miles) grew 2% and led to a 10 basis point decline in load factor (percentage of seats filled with passengers) to 85.5% as capacity expansion outweighed traffic growth. Average fuel price (on a consolidated basis) per gallon, excluding hedge losses, decreased 13.4% year over year to $1.49.
Total operating expenses, excluding special items, grew 1% year over year to $8.2 billion. Consolidated unit cost, or cost per available seat mile (CASM) – excluding fuel, third-party business expenses and profit sharing – increased 3.4% year over year, primarily due to the labor deal with flight attendants which has been recently ratified.
As of Sep 30, 2016, United Continental had $6.2 billion of unrestricted liquidity, which included $1.35 billion of undrawn commitments under its revolving credit facility. The carrier generated $1.1 billion of free cash flow in the quarter under review. Free cash flow at the end of the quarter was $459 million.
United Continental expects consolidated PRASM to decline in the range of 4–6% in the fourth quarter. Consolidated capacity is projected to increase 1–2% in the final quarter of 2016. Capacity for 2016 is projected to expand in the range of 1.2–1.4%. Fuel price, including all cash settled hedges, is estimated in the band of $1.63–$1.68 per gallon in the fourth quarter. The company expects pre-tax margin in the range of 5–7% and 11.2–11.6% in the fourth quarter and full-year 2016, respectively.
Zacks Rank & Key Picks
United Continental carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the transportation space include Copa Holdings (CPA - Free Report) , SkyWest Inc. (SKYW - Free Report) and ANA Holdings Inc. . While ANA Holdings carries a Zacks Rank #2 (Buy), both SkyWest and Copa Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For 2016, the Zacks Consensus Estimate for Copa Holdings has climbed 12 cents to $4.57 per share over the last month.
The Zacks Consensus Estimate has increased 12 cents to $2.65 per share over the last three months for SkyWest.
The earnings growth rate for ANA Holdings for the current year stands at a healthy 24.3%, much higher than the industry figure.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>