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Why Is United Continental (UAL) Down 14.4% Since the Last Earnings Report?

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It has been more than a month since the last earnings report for United Continental Holdings, Inc. (UAL - Free Report) . Shares have lost about 14.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

United Continental Holdings' third-quarter earnings (excluding 10 cents from non-recurring items) came in at $2.22 per share, beating the Zacks Consensus Estimate by 1.8%. Earnings were, however, 28.6% lower than the year-ago figure due to higher costs.

Operating revenues of $9,878 million in the third quarter were also marginally ahead of the Zacks Consensus Estimate of $9,857.3 million. However, the top line shrunk 0.4% on a year-over-year basis.

Operating Results

The company, which had to cancel 8,300 flights in the quarter due to the weather-related disruptions, reported a 3.7% decline in consolidated passenger revenue per available seat mile (PRASM or unit revenues) year over year to 12.17 cents. The figure was also below the Zacks Consensus Estimate of 12.62 cents.

Yield on a consolidated basis declined 2.5% from the third quarter of 2016, while passenger revenues dipped 0.9% to $8,528 million. Cargo revenues increased 14.7% and other revenues inched up 0.6% in the said time frame. Higher international freight volumes boosted cargo revenues in the quarter.

During the reported quarter, airline traffic measured in revenue passenger miles, improved 1.7% year over year on a consolidated basis. Capacity (or available seat miles) grew 3%. Load factor (percentage of seats filled with passengers) declined 110 basis points to 84.4%, as capacity expansion outpaced traffic growth. Average fuel price per gallon (on a consolidated basis), excluding hedge losses, increased 14.1% year over year to $1.70.

Total operating expenses grew 6% year over year to $8.8 billion. Consolidated unit cost or cost per available seat mile (CASM) — excluding fuel, third-party business expenses and profit sharing — increased 2.6% year over year, primarily owing to the labor deals inked by the company. The quarter saw the carrier buying back $556 million of its common stock.

Liquidity

United Continental exited the third quarter with $6.3 billion in unrestricted liquidity, which included $2 billion of undrawn commitments under its revolving credit facility. In fact, the company generated $577 million in operating cash flow in the quarter under review. Free cash flow (adjusted) at the end of the quarter was $505 million.

Fourth-Quarter Guidance

United Continental expects consolidated PRASM to decline between 1% and 3% (year over year) in the final quarter of 2017. Consolidated capacity is projected to climb approximately 3.5% in the fourth quarter. The company expects pre-tax margin (adjusted) in the range of 3-5%. In addition, unit costs (excluding Fuel, Profit Sharing & Third Party business costs) are anticipated to increase in the band of 2.5-3.5% owing to higher labor and fuel costs. Average fuel price per gallon (consolidated) is projected between $1.80 and $1.85.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is solely suitable for value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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