United Continental’s Q3 Earnings: Shares Tumble On Horrific Earnings Call

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United Continental Holdings
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United Continental (NYSE:UAL) posted a better-than-expected quarter this time around, beating the consensus estimates in terms of earnings comfortably. That said, earnings were down almost 28% year-over-year on higher costs associated with adverse weather conditions that forced the airline to cancel more than 8,300 flights. Consequently, revenues came in $210 million lower in comparison to the same period last year. However, this isn’t the worst news to come out of the call for the airline.

The company witnessed its value plummet by more than 12% post the earnings call, when upper management spooked investors into a selling frenzy after failing to answer Wall Street analysts’ questions with much coherency or confidence. Analysts called into question the company’s growth initiatives that have, so far, failed to show any validity.

Earlier on Investor Day 2016, management had mentioned that it expects to grow earnings by about $1 billion in 2017, and by about $2 billion in 2018. When pressed on giving a update on this, CEO Oscar Munoz asked investors to remain patient, while giving his team some time to work things out. His failure to provide a concrete answer irked analysts further. The market reacted in about the same way, recording the single largest fall in the airline’s stock price since 2011. Thus far in the year, United’s stock price is down a significant 17%, while shares of competitors like American, Delta, and Southwest airlines had gained between 6 and 17 percent.

As expected, the company recorded a fall in its unit revenues by 3.7% year-over-year. Growth recorded in the U.S. and Latin American markets more than offset the headwinds realized in the Pacific market, where slow demand continues to plague operations. Tougher year-over-year comparisons and heavy pricing pressures in the Pacific could see the unit revenues fall in Q4 by as much as 1-3%.

Non-fuel costs rose by almost 2.6% this time around, driven primarily by the recently ratified labor contracts penned late last year and higher maintenance costs. Q4 is expected to see even worse conditions as fuel costs continue to increase. The company hopes to see per unit ex-fuel costs come in around 2.5-3.5% in Q4. For the full year, the metric is expected to come in around 3-4%.

All in all, things seem to have gone from bad to worse for the company. At the moment, the airline is the worst performing of all its competitors in terms of earnings, margin, and stock price.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for United Continental

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