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United (UAL) Down 13.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for United Airlines (UAL). Shares have lost about 13.1% in that time frame, underperforming the S&P 500.

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

Wider-Than-Expected Loss in Q1

United Airlines incurred a loss of $4.24 per share in the first quarter of 2022, wider than the Zacks Consensus Estimate of a loss of $4.19. This is the ninth consecutive quarterly loss incurred by the company as coronavirus concerns continue to weigh on air-travel demand. Results were hurt by Omicron-induced softness in travel demand in the first half of the reported quarter. However, the bottom line improved 43.5% year over year.

Operating revenues of $7,566 million also fell short of the Zacks Consensus Estimate of $7,657.2 million. The top line surged more than 100% year over year as air-travel demand continued to rebound from thepandemic-led slump. However, with the prevalent pandemic, the same declined 21.1% from the first quarter of 2019.

The year-over-year increase in the top line was driven by more than 100% rise in passenger revenues (accounted for 83.9% of the top line) to $6,348 million. Despite this significant year-over-year improvement, passenger revenues fell 27.2% from the first quarter of 2019. Cargo revenues skyrocketed more than 100% year over year to $627 million. Revenues from other sources inched up 2.2% from the first quarter of 2019 to $591 million.

Operating Results

Below, we present all comparisons (in % terms) with first-quarter 2019.

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) decreased 10.3% to 11.92 cents. Total revenue per available seat mile (TRASM) dipped 2.8% to 14.2 cents. On a consolidated basis, average yield per revenue passenger mile was flat at 16.43 cents.

Consolidated airline traffic, measured in revenue passenger miles, dropped 27.2%, while capacity, measured in available seat miles, fell 18.9%. Consolidated load factor (percentage of seat occupancy) deteriorated 8.3 percentage points to 72.6% as traffic declined more than the drop in capacity. Average aircraft fuel price per gallon jumped 40.5% to $2.88. Fuel gallons consumed were down 21.3%.

Adjusted operating expenses decreased 4.3% to $6,686 million. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, third-party business expenses, profit-sharing and special charges, ascended by 17.8%.

United Airlines, carrying a Zacks Rank #3 (Hold), exited the first quarter with cash and cash equivalents of $18,468 million compared with $18,283 million at the end of 2021. Long-term debt at the end of the reported quarter was $29,665 million compared with $30,361 million at the end of December 2021. The company exited the quarter with total available liquidity of $20 billion.

Outlook

For the second quarter, United Airlines expects capacity to decline around 13% from the second quarter of 2019. CASM, excluding fuel, third-party business expenses, profit-sharing and special charges, is anticipated to increase 16% in the current quarter from the 2019 level. UAL forecasts the average aircraft fuel price per gallon to be $3.43 in the second quarter. Adjusted capital expenditures are predicted to be $5.3 billion for full-year 2022.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 1058.74% due to these changes.

VGM Scores

At this time, United has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Outlook

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


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