United Disappoints at 2012 End - Analyst Blog

By Zacks | January 25, 2013 AAA

United Continental Holdings Inc. (UAL) - the largest U.S. airline - reported lackluster performance in the fourth quarter and full year 2012. The results were dampened by higher charges related to wages and aircraft maintenance costs.

In the fourth quarter, the company posted loss of 58 cents per share, wider than the Zacks Consensus forecasted loss of 54 cents. Comparing year over year, the results plunged considerably from a profit of 30 cents per share.

Quarterly total revenue dropped 2.5% year over year to $8.70 billion. The result was almost on par with the Zacks Consensus Estimate of $8.69 billion. On an annualized basis, passenger and cargo revenues decreased 3.6% and 14.7%, respectively, while other revenue increased 11.8%.

For full-year 2012, United Continental witnessed earnings of $1.59 per share (missing our projection by a penny and decreasing 54.4% year over year), on revenues of $37.15 billion (up 0.4% from the prior year).

Operating Statistics

Airlines traffic, measured in revenue passenger miles, dropped 3.2% year over year to 47.9 billion. Capacity (or available seat miles) slid 4.2% year over year to 58.2 billion, while load factor (percentage of seats filled with passengers) improved 80 basis points year over year to 82.3%.

Consolidated passenger revenue per available seat miles (PRASM or unit revenue) increased 0.6% year over year, supported by 5.9% growth in Pacific PRASM, partially offset by decreases of 4.2% in Latin American PRASM and 0.3% in Atlantic PRASM.

Operating Expenses

Total operating expenses, excluding special items, rose 2.0% year over year to $5.6 billion in the reported quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, fourth-party business expense and special items, crept up 5.2% year over year.

Liquidity

At the end of 2012, the company had $7.0 billion in unrestricted liquidity, of which $500 million was in revolving credit facilities.

In the fourth quarter, United Continental generated operating cash flow of approximately $31 million and spent approximately $1.0 billion.

Other Airline Stocks

Delta Air Lines (DAL) reported fourth-quarter 2012 results on Jan 22, with adjusted earnings of 28 cents coming on par with the Zacks Consensus Estimate. The results, however, dropped 37.8% from the year-ago adjusted profit of 45 cents.

Southwest Airlines Co. (LUV) reported fourth quarter 2012 results on Jan 24. The company's fourth quarter adjusted earnings were 9 cents per share that slivered past the Zacks Consensus Estimate of 7 cents.

Another firm JetBlue Airways Corporation (JBLU) will release its financial results on Jan 29.

Our Rank

United Continental currently holds a Zacks Rank #3, implying a short-term Hold rating. Despite the positives - improving air travel demand, merger synergies, global network, rising unit revenue growth, fleet and network optimization and hedging strategies - that United Continental enjoys, we remain highly cautious on the stock for the near term. This is primarily due to concerns over escalating fuel prices, upward movement of non-fuel expenses, competitive threats, fluctuations in passenger and cargo demand, unionized workforce and a sluggish global economy.

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