United Continental Holdings Inc (ticker: UAL) reported second-quarter earnings and revenue beats on Tuesday afternoon, but the stock’s share price is losing altitude. Despite positive unit revenue growth and optimistic commentary from management, investors were disappointed with United’s initial guidance for the third quarter.
United reported earnings per share of $2.75, modestly topping consensus analyst estimates of $2.67. Revenue on the quarter was $10 billion, barely above Wall Street’s forecast of $9.97 billion.
Passenger revenue per available seat mile (PRASM) was up 2.1 percent in the quarter, and capacity was up 5.3 percent. The company’s operating margin also increased by 2.7 percent year-over-year to 14 percent.
[See: 9 Most-Loved Stocks in the Trump White House.]
United CEO Oscar Munoz says the strong quarter is an indication that United is headed in the right direction.
“From investing in our products and our people, redoubling our focus on the customer experience, closing the margin gap with our peers and delivering strong returns to our investors, we have made important progress and moved United decisively forward,” Munoz says.
Investors were disappointed with the company’s third-quarter guidance suggesting PRASM growth will be between 1 percent and -1 percent in the third quarter. Last week, rival Delta Air Lines ( DAL) guided for third-quarter PRASM growth of between 2.5 and 4.5 percent.
[See: 10 Skills the Best Investors Have.]
United also expects pre-tax margins in the third quarter to fall in the 12.5 percent to 14.5 percent range. Delta forecasted third-quarter operating margins in the 18 to 20 percent range.
United also says it will be now be offering passengers up to $10,000 to give up seats on overbooked flights. United’s reputation took a hit in April after a viral video of passenger David Dao being dragged off an overbooked flight. Passengers on Dao’s flight were offered only $800 to give up their seats.
Even before United issued its relatively weak third-quarter guidance, Cowen & Co. analyst Helane Becker says the third quarter may be tough for United and American Airlines Group ( AAL).
Delta should have relatively easy year-over-year comparisons in the third quarter after the company was forced to cancel roughly 2,000 flights in August 2016 due to a computer outage.
[See: 7 of the Best Stocks to Buy for 2017.]
“We anticipate a rotation from United and American into Delta,” Becker says, adding that Delta stock is a “must own” for airline investors.
More from U.S. News
7 Great Ways to Invest in Cuba
High-Tech Investing: 7 Sectors to Watch
11 Great Investing Tips for Women
United Continental Holdings Inc (UAL) Stock Nosedives on Weak Guidance originally appeared on usnews.com
