Why Is United (UAL) Down 5.2% Since Last Earnings Report?

A month has gone by since the last earnings report for United Airlines (UAL). Shares have lost about 5.2% 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 catalysts.

Narrower-Than-Expected Loss in Q1

The company incurred a loss (excluding $4.29 from non-recurring items) of $2.57 per share, comparing favorably with the Zacks Consensus Estimate of a loss of $3.25. Results were hurt by the coronavirus-induced weakness in air-travel demand.

Even though operating revenues of $7,979 million decreased 16.8% year over year, the same marginally beat the Zacks Consensus Estimate of $7,976 million. The year-over-year plunge was due to the 19% decrease in passenger revenues, which accounted for bulk (88.5%) of the top line. Moreover, cargo revenues representing 3.3% of the top line declined 7.7%. Revenues from other sources contributed to the remainder.

Operating Results

Consolidated passenger revenue per available seat mile (PRASM: a key measure of unit revenues) decreased 12.8% year over year to 11.59 cents. Total revenue per available seat mile declined 10.4% year over year to 13.09 cents. On a consolidated basis, average yield per revenue passenger mile dipped 0.5% from the year-ago quarter.

During the quarter under review, consolidated airline traffic, measured in revenue passenger miles, decreased 18.7% year over year. Capacity (or available seat miles) contracted 7.2%. Consolidated load factor (percentage of seat occupancy) deteriorated 10 percentage points to 70.9% as traffic decline was more than capacity contraction. Meanwhile, average fuel price per gallon (on a consolidated basis) decreased 7.3% year over year to $1.90.

Total adjusted operating expenses inched up 1.8% year over year to $7,118 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 was up 9.7% year over year. Moreover, total unit costs increased 6.1% year over year.

United Airlines exited the first quarter with cash and cash equivalents of $3,442 million compared with $2,762 million at 2019 end. Long-term debt at the end of the reported quarter was $13,198 million compared with $13,145 million at 2019 end.

Other Details

The company anticipates daily cash burn (on average) in the $40-$45 million range during the second quarter of 2020. Moreover, the carrier had $9.6 billion in liquidity as of Apr 29, 2020. The figure is inclusive of $2 billion under its undrawn revolving credit facility.

Moreover, the carrier reduced its adjusted capex guidance for 2020 by $2.5 billion in view of the coronavirus crisis. The current-year metric is now expected below $4.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, United has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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