It has been about a month since the las t earnings report for United Continental (UAL). Shares have added about 2.6% in that time frame, underperforming 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 its most recen t earnings report in order to get a better handle on the important drivers.
Earnings Beat at United Continental in Q4
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.
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.
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.
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.
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.
United Continental expects 2019 earnings between $10 and $12 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.
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 83.61% due to these changes.
At this time, United has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.