United Airlines expects first profitable year since 2019, shares soar

United Airlines Holdings Inc. executives expect to post a profit this year, a surprise to investors who sent the company’s shares up more than 7% in after-hours trading on Wednesday.

united UAL,
+1.24%
announced a loss of $1.38 billion in the first quarter, or $4.24 per share, an improvement from a loss of $7.50 per share a year ago. Revenue reached $7.57 billion, compared to $3.22 billion a year ago. Analysts on average had expected a loss of $4.22 per share on revenue of $7.67 billion, according to FactSet.

It’s the ninth consecutive quarter that United have posted an adjusted loss, but the bosses surprisingly promised that the second quarter and full year would end in the dark. They were targeting a 10% operating margin for the second quarter and promised to be “solidly profitable”, while predicting the “highest quarterly revenue in company history in the second quarter”.

“The airline has an optimistic outlook for the future – bolstered by this continued strength in demand and the fact that it is approaching 2019 operating margins – and has once again reiterated its confidence in its targets going forward. longer-term United Next of an adjusted pretax margin of approximately 9% in 2023 and approximately 14% in 2026,” the company said in the statement. “This confidence is underpinned by the business’ current expectation of report a profit for the whole of 2022.”

According to FactSet, analysts on average had expected an annual loss of nearly $900 million, $2.52 per share, and a loss of 17 cents per share in the second quarter. The shares jumped more than 7% in after-hours trading immediately after the earnings release, after closing with a 1.2% gain at $46.52.

Forecasts have been more important than results for airlines as the effects of the COVID-19 pandemic wane. After Delta Air Lines Inc. DAL,
+1.16%
released a stronger-than-expected earnings forecast last week as airline stocks rose, including United, which has gained about 9% since Delta reported.

United did not provide full and delineated predictions in Wednesday’s report in the same way as previous releases. The elements United included in the release, however, were enough to excite investors.

“We now see clear evidence that the second quarter will be a historic inflection point for our business,” chief executive Scott Kirby said in a statement. “It leaves me feeling more optimistic than ever about United’s future.”

Executives plan to hold a conference call at 10:30 a.m. Eastern Time on Thursday when they plan to discuss the “financial and operating outlook for the second quarter of 2022 and beyond,” according to the company’s press release. Wednesday.

Concerns about the recovery in airline profits persist due to the rising cost of jet fuel. In Wednesday’s forecast, United executives said fuel cost $2.88 a gallon in the second quarter, well above the forecast of $2.51 a gallon provided by executives three months ago and the 2 $.41 per gallon United paid on average in the fourth quarter of 2021.

JP Morgan analysts said in a preview of airline earnings last week that “$4.00 of jet fuel now populates our short-term models,” but they expect costs to come down later in the year.

“The near-term issue is fuel, but we remain constructive assuming economic trends remain stable and fuel prices recede later this year (two important caveats),” the analysts wrote, while retaining an underweight rating and a $60 price target on United stock.

Despite United’s negative rating, analysts like the current outlook for airline stocks in general.

“Demand trends continue to accelerate, supply should improve even more than it has already, non-fuel cost trends are, well, unimpressive but understood, consolidation is underway and the back-to-the-office momentum bodes well for a healthy recovery for the business once the summer lull passes, in our view,” they wrote on April 11. “This represents a compelling setup for most airline stocks.

United shares are down 7.6% in the past 12 months, as the S&P 500 SPX index,
-0.06%
gained 7.9%. So far in 2022, those moves have all but reversed, with United gaining 6.1% so far this year as the S&P 500 has fallen 6.4%.

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