United Continental Holdings Inc.’s UAL third-quarter 2016 earnings (on an adjusted basis) of $3.11 per share beat the Zacks Consensus Estimate by 6 cents. The bottom line, however, plunged 31.35% year over year owing to lower revenues.
Operating revenues of $9,913 million in the third quarter edged past the Zacks Consensus Estimate of $9,899 million. However, revenues decreased 3.8% on a year-over-year basis. The decline in revenues can be attributed to a stronger U.S. dollar, lower surcharges, reductions in energy-related corporate travel, and soft yields. Notably, low air fares have been hurting the entire airline industry for quite some time.
During the quarter, the company bought back approximately $255 million worth of shares. As of Jun 30, the company had $2 billion remaining under its existing share repurchase program.
Consolidated passenger revenue per available seat mile (PRASM or unit revenue) declined 5.8% year over year to 12.64 cents. Yield on a consolidated basis declined 5.7% from the second quarter of 2015. Passenger revenues fell 4% to $8,603 million. Cargo revenues were down 4.7%, while other revenues dipped 2.3% in the third quarter. During the reported quarter, airline traffic, measured in revenue passenger miles, improved 1.8% year over year on a consolidated basis. Capacity (or available seat miles) grew 2% and led to a 10 basis point decline in load factor (percentage of seats filled with passengers) to 85.5% as capacity expansion outweighed traffic growth. Average fuel price (on a consolidated basis) per gallon, excluding hedge losses, decreased 13.4% year over year to $1.49.
Total operating expenses, excluding special items, grew 1% year over year to $8.2 billion. Consolidated unit cost, or cost per available seat mile (CASM) – excluding fuel, third-party business expenses and profit sharing – increased 3.4% year over year, primarily due to the labor deal with flight attendants which has been recently ratified.
As of Sep 30, 2016, United Continental had $6.2 billion of unrestricted liquidity, which included $1.35 billion of undrawn commitments under its revolving credit facility. The carrier generated $1.1 billion of free cash flow in the quarter under review. Free cash flow at the end of the quarter was $459 million.
United Continental expects consolidated PRASM to decline in the range of 4–6% in the fourth quarter. Consolidated capacity is projected to increase 1–2% in the final quarter of 2016. Capacity for 2016 is projected to expand in the range of 1.2–1.4%. Fuel price, including all cash settled hedges, is estimated in the band of $1.63–$1.68 per gallon in the fourth quarter. The company expects pre-tax margin in the range of 5–7% and 11.2–11.6% in the fourth quarter and full-year 2016, respectively.
Zacks Rank & Key Picks
United Continental carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the transportation space include Copa Holdings CPA, SkyWest Inc. SKYW and ANA Holdings Inc. ALNPY. While ANA Holdings carries a Zacks Rank #2 (Buy), both SkyWest and Copa Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For 2016, the Zacks Consensus Estimate for Copa Holdings has climbed 12 cents to $4.57 per share over the last month.
The Zacks Consensus Estimate has increased 12 cents to $2.65 per share over the last three months for SkyWest.
The earnings growth rate for ANA Holdings for the current year stands at a healthy 24.3%, much higher than the industry figure.
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