Earnings
United Airlines sets a revenue record, but a 60% jump in fuel costs cuts adjusted profit and its fourth-quarter outlook
United's third-quarter adjusted EPS of $2.54 fell short of estimates, and its fourth-quarter profit range came in well below consensus, sending the shares lower after hours.
HedgeWeekly News Desk ·
United Airlines Holdings reported record third-quarter operating revenue of $17.88 billion on Tuesday, up 17.4% from a year earlier, but a surge in fuel costs pushed adjusted earnings down. Adjusted diluted EPS fell 8.6% to $2.54, slightly below the $2.57 analysts expected, while GAAP net income rose 8.5% to $1.03 billion, or $3.14 a share.
Fuel was the swing factor. The carrier paid an average of $3.90 a gallon in the quarter, against $2.43 a year earlier, lifting its fuel bill 61.6% to $4.84 billion. Pricing largely kept pace: total revenue per available seat mile climbed 15.9% on capacity growth of just 1.3%. Unit costs excluding fuel and special items rose 7.8%, and the adjusted pre-tax margin was 6.2%.
The outlook disappointed. United guided to fourth-quarter adjusted EPS of $0.50 to $1.50, well short of the $1.76 consensus, even as it forecast revenue growth above 20% for the quarter. The shares fell to $94.56 in after-hours trading from a $98.00 close. Free cash flow was negative $1.84 billion in the third quarter, though still $1.38 billion positive for the first nine months.
For investors, the release shows how the energy shock is moving through airline balance sheets. Trailing net leverage rose to 2.4 times from 2.1 times a year earlier, total debt and related obligations stood at $26.4 billion, and United bought back just $27 million of stock in the first nine months against $610 million a year ago. It expanded its revolving credit facility to $5 billion from $3 billion on October 16, taking available liquidity to $17.7 billion. Management's earnings call on Wednesday, October 21 is the next test of how long it expects fuel to weigh on margins.