A month has gone by since the last earnings report for United Continental (UAL - Free Report) . Shares have added about 3.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is United 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.
Earnings Miss at United Continental in Q3
The company’s earnings (on an adjusted basis) of $3.06 per share fell short of the Zacks Consensus Estimate of $3.09. However, the bottom line increased year over year despite high fuel costs.
Operating revenues came in at $11,003 million, which outpaced the Zacks Consensus Estimate of $10,956.4 million. Moreover, the top-line figure was up 11.2% year over year.
Passenger revenues, which increased 11.6% highlighting the strong demand for air travel, accounted for bulk (92%) of the top line. Cargo revenues rose 6.1%, accounting for 2.7% of the top line. The balance came from other operating revenues.
The company reported a year-over-year rise of 6.1% in consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) to 13.73 cents. Total revenue per available seat mile increased 5.7% to 14.93 cents. On a consolidated basis, average yield per revenue passenger mile inched up 4.1% from the year-ago quarter.
During the quarter, consolidated airline traffic — measured in revenue passenger miles — improved 7.2% year over year. Capacity (or available seat miles) rose 5.1%. Consolidated load factor (percentage of seat occupancy) was up 160 basis points to 86% as traffic growth outweighed capacity expansion. Average fuel price per gallon (on a consolidated basis) escalated 36.5% year over year to $2.32.
Total operating expenses rose 11.9% year over year to $9,800 million in the third quarter. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses, profit sharing and special charges — dipped 0.4% year over year. United Continental generated $98 million as free cash flow (adjusted) at the end of the third quarter.
The company anticipates capacity to expand between 5% and 6% while pre-tax margin (adjusted) is estimated to lie in the range of 5-7%. Passenger unit revenues are projected to increase 3-5% year over year. Additionally, United Continental predicts consolidated CASM — excluding third-party business expenses, fuel & profit sharing — to either remain flat or decline up to 1% year over year.
Meanwhile, consolidated average aircraft fuel price per gallon is anticipated between $2.41 and $2.46. Effective income tax rate for the quarter under review is likely to be in the 20-21% band.
United Continental now expects 2018 earnings between $8 and $8.75 per share (earlier outlook projected 2018 earnings in the range of $7.25 to $8.75 per share).
United Continental is well on track to achieve its 2020 adjusted earnings per share guidance range of $11 -$13.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 23.46% due to these changes.
At this time, United has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.