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United Continental (UAL) Up 6% on Q4 Earnings & Revenue Beat

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United Continental Holdings (UAL - Free Report) reported better-than-expected earnings and revenues in the fourth quarter of 2018. The company’s earnings (excluding 71 cents from non-recurring items) of $2.41 per share surpassed the Zacks Consensus Estimate of $1.86. Moreover, the bottom line showed a massive year-over-year improvement.

Operating revenues came in at $10.49 billion, outpacing the Zacks Consensus Estimate of $10.37 billion. Additionally, the top line rose significantly year over year.

The strong earnings and revenue beat pleased investors. Consequently, the stock climbed more than 6% in after-hours trading on Jan 15.

Passenger revenues, accounting for bulk (91.1%) of the top line, increased 11.3%, highlighting strong demand for air travel. Cargo revenues ascended 3.1%, accounting for 3.2% of the top line. Revenues from other sources accounted for the balance.


Operating Results

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) augmented 5% year over year to 13.87 cents. Total revenue per available seat mile increased 4.8% year over year to 15.23 cents. On a consolidated basis, average yield per revenue passenger mile inched up 3.8% from the year-ago quarter.

During the quarter under review, consolidated airline traffic — measured in revenue passenger miles — improved 7.2% year over year. Capacity (or available seat miles) rose 6%. Consolidated load factor (percentage of seat occupancy) was up 100 basis points to 82.7% as traffic growth outweighed capacity expansion. Average fuel price per gallon (on a consolidated basis) escalated 20.4% year over year to $2.30.

Total operating expenses jumped 13.4% year over year to $9,839 million in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses, profit sharing and special charges — dipped 0.7% year over year. United Continental’s cash outflow (adjusted) at the end of the fourth quarter was $483 million.

Full-Year Results

The company reported adjusted earnings of $9.13 per share in 2018, beating the Zacks Consensus Estimate of $8.63. Revenues of $41.30 billion also trumped the Zacks Consensus Estimate of $41.18 billion. Moreover, both the top and the bottom line improved substantially year over year despite a fuel cost headwind of $2.4 billion in the year.

Q1 Outlook

The company anticipates capacity to expand between 5% and 6% while pre-tax margin (adjusted) is estimated in the range of 2.5-4.5%. Passenger unit revenues are projected to increase 0-3% year over year.


Meanwhile, consolidated average aircraft fuel price per gallon is envisioned between $2 and $2.05. Effective income tax rate for the quarter under consideration is likely to be in the 21-23% band.

Full-Year Outlook

United Continental expects 2019 earnings between $10 and $12 per share. The Zacks Consensus Estimate for full-year earnings stands at $10.65 per share. Capacity is estimated to expand 4-6% year over year. Additionally, effective income tax is forecast in the 21-23% band during the current year. Adjusted capital expenditures are anticipated to total approximately $4.7 billion in the year.

Zacks Rank & Other Key Picks

United Continental carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader Transportation sector are Azul (AZUL - Free Report) , Spirit Airlines (SAVE - Free Report) and ArcBest Corporation (ARCB - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Azul, Spirit and ArcBest have gained more than 16%, 26% and 4%, respectively, in a year.

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