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Why Is United Continental (UAL) Up 1% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for United Continental Holdings, Inc. (UAL - Free Report) . Shares have added about 1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is UAL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

First-quarter earnings

The company’s earnings 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). 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. 

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.

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%. 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to one lower. Last month, the consensus estimate has shifted by 8.1% due to these changes.

United Continental Holdings, Inc. Price and Consensus

 

VGM Scores

At this time, UAL has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, UAL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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