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United Beats Earnings by a Sliver - Analyst Blog

By: Zacks.com
Posted: 7/26/2013 11:40:00 AM
Referenced Stocks: BA;CASM;ERJ;LUV;UAL

The largest U.S. airline - United Continental Holdings Inc. ( UAL ) - reported better-than-expected results in second quarter 2013. Consistent progress in customer service, enhancement of operations and aggressive promotional activities aided the company's performance.

The company posted earnings of $1.35 per share, a penny ahead of the Zacks Consensus Estimate. Comparing year over year, the results declined from $1.41 per share.

Quarterly total revenue improved 0.6% year over year to $10.0 billion. The result surpassed the Zacks Consensus Estimate of $9.9 billion. On an annualized basis, Other revenues increased 21.1%, while Passenger and Cargo revenues decreased 1.1% and 10.9%, respectively.

Operating Statistics

Airlines traffic, measured in revenue passenger miles, dropped 1.7% year over year to 53.6 billion. Capacity (or available seat miles) slid 2.1% year over year to 63.3 billion, while load factor (percentage of seats filled with passengers) improved 40 basis points year over year to 84.7%.

Consolidated passenger revenue per available seat miles (PRASM or unit revenue) increased 1.0% year over year, supported by 6.1% growth in Atlantic PRASM, partially offset by a decrease of 3.4% in Pacific PRASM.

Operating Expenses

Total operating expenses, excluding special items, increased 0.2% year over year to $9.2 billion in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding third-party business expense and special items, crept up 4.5% year over year.

Liquidity

At the end of the second quarter, the company had $7.0 billion in unrestricted liquidity, of which $1 billion was in revolving credit facilities. In the quarter, United Continental generated operating cash flow of approximately $1.1 billion and spent approximately $549 million.

Other Airline Stocks

Southwest Airlines Co. ( LUV ) reported second quarter 2013 adjusted earnings of 38 cents per share, a penny short the Zacks Consensus Estimate. The results, however, improved from the prior-year quarter adjusted earnings of 36 cents per share on fleet re-designing, expansion of network and less fuel expense.

Our Take

United Continental - which recently entered into a deal with The Boeing Company ( BA ) to buy 10 of its 787-10 aircraft - currently holds a Zacks Rank #3, implying a Hold rating.

We believe that the company is poised for growth in the coming quarters from its renewed and upgraded jets, expansion of network, customer-friendly services and promotional activities. United has agreed to buy 30 Embraer SA 's ( ERJ ) 175 regional jets. The deal, estimated at about $4 billion, also has the option of 40 additional purchases.

However, we remain concerned about fluctuating fuel prices, competitive threats, changing passenger and cargo demand, technological mishaps and a sluggish global economy.



BOEING CO (BA): Free Stock Analysis Report

EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

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