Despite the recent hurricanes United Continental Holdings (UAL - Free Report) reported better-than-expected results in the third quarter of 2017. The company’s earnings (excluding 10 cents from non-recurring items) came in at $2.22 per share, beating the Zacks Consensus Estimate by 1.8%. Earnings were, however, 28.6% lower than the year-ago figure due to higher costs.
Operating revenues of $9,878 million in the third quarter were also marginally ahead of the Zacks Consensus Estimate of $9,857.3 million. However, the top line shrunk 0.4% on a year-over-year basis.
We note that United Continental is the second major U.S.- based carrier to report better-than-expected results in the quarter after Delta Air Lines (DAL - Free Report) which commenced the third-quarter earnings season for airlines on a bright note on Oct 11.
The company, which had to cancel 8,300 flights in the quarter due to the weather-related disruptions, reported a 3.7% decline in consolidated passenger revenue per available seat mile (PRASM or unit revenues) year over year to 12.17 cents. The figure was also below the Zacks Consensus Estimate of 12.62 cents.
Yield on a consolidated basis declined 2.5% from the third quarter of 2016, while passenger revenues dipped 0.9% to $8,528 million. Cargo revenues increased 14.7% and other revenues inched up 0.6% in the said time frame. Higher international freight volumes boosted cargo revenues in the quarter.
During the reported quarter, airline traffic measured in revenue passenger miles, improved 1.7% year over year on a consolidated basis. Capacity (or available seat miles) grew 3%. Load factor (percentage of seats filled with passengers) declined 110 basis points to 84.4%, as capacity expansion outpaced traffic growth. Average fuel price per gallon (on a consolidated basis), excluding hedge losses, increased 14.1% year over year to $1.70 and was also above the Zacks Consensus Estimate of $1.62.
Total operating expenses grew 6% year over year to $8.8 billion. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses and profit sharing — increased 2.6% year over year, primarily owing to the labor deals inked by the company. The quarter saw the carrier buying back $556 million of its common stock.
United Continental exited the third quarter with $6.3 billion in unrestricted liquidity, which included $2 billion of undrawn commitments under its revolving credit facility. In fact, this Zacks Rank #5 (Strong Sell) company generated $577 million in operating cash flow in the quarter under review. Free cash flow (adjusted) at the end of the quarter was $505 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fleet Upgrade Efforts
The company, which is constantly looking to upgrade its fleet, made substantial progress in this respect in the quarter. For instance, it took delivery of one Boeing 787-9 aircraft, four Boeing 737-800 aircraft and nine Embraer E175 aircraft. Additionally, it finalized deals to take delivery of two more used Airbus A320 aircraft by Dec 31, 2017.
United Continental expects consolidated PRASM to decline between 1% and 3% (year over year) in the final quarter of 2017. The carrier, which is engaged in a price war with discount airlines like Spirit Airlines (SAVE - Free Report) , expects ticket prices to remain weak in the fourth quarter.
Consolidated capacity is projected to climb approximately 3.5% in the fourth quarter. The company expects pre-tax margin (adjusted) in the range of 3-5%. In addition, unit costs (excluding Fuel, Profit Sharing & Third Party business costs) are anticipated to increase in the band of 2.5-3.5% owing to higher labor and fuel costs. Average fuel price per gallon (consolidated) is projected between $1.80 and $1.85.
Other Important Releases Coming Up
Investors interested in the airline space will now keenly await the third-quarter earnings reports from likes of Hawaiian Holdings Inc. (HA - Free Report) and JetBlue Airways Corp. (JBLU - Free Report) on Oct 19 and Oct 24, respectively.
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