United shares jump after airline raises profit outlook

Key Points
  • United's adjusted second-quarter earnings per share were $3.23, beating analyst estimates of $3.07 a share.
  • Net income dropped to $684 million, down nearly 17 percent from a year ago.
  • The airline's shares rose by more than 3 percent in after-market trading.
A United Airlines airplane takes off at San Francisco International Airport on June 15, 2018. 
Gary Hershorn | Corbis News | Getty Images

United Continental shares jumped by more than 3 percent in after-market trading Tuesday after the parent company of the third-largest U.S. carrier topped second-quarter profit expectations and raised its outlook for the year.

Revenue in the quarter ended in June rose close to 8 percent from the year-ago period to $10.78 billion, slightly higher than Wall Street estimates of $10.72 billion, the company said in releasing its earnings after the markets closed.

Airlines have been grappling with a profit-crimping surge in fuel costs, generally their second-largest expense after labor. It poses a conundrum for airlines that are trying to capitalize on robust travel demand — albeit at smaller profit margins. United's fuel costs surged 43 percent from the same quarter last year and weighed on the carrier's bottom line. Net income in the three months ended in June was $684 million, down nearly 17 percent.

Here’s what the company reported, versus what Wall Street expected:

  • Earnings: $3.23 per share versus the $3.07 per share that analysts polled by Thomson Reuters expected
  • Revenue: $10.78 billion versus the $10.72 billion analysts polled by Thomson Reuters expected

United CEO Oscar Munoz, who is scheduled to appear on CNBC Wednesday at 8 a.m. ET, came under pressure earlier this year after the airline launched an aggressive growth plan. Some investors worried that expanding the supply of seats in the market would suppress airfares. United trimmed its forecast for full-year capacity growth to as much as 5 percent from the up to 5.5 percent it forecast in April. Analysts expect airlines to scale back on growth once the peak summer travel season is over.

United jumps after Q2 earnings, beats revenue

But United's sunnier outlook for the year appears to have calmed some investor worries. The airline expects to earn a full-year per-share profit of between $7.25 and $8.75, up from an estimate in April of $7.00 to $8.50.

The revenue per each seat United flew a mile in the last quarter, a key measure of performance for airlines, rose 2.8 percent in the second quarter. The company said it expects that to grow at an even faster pace, as much as 6 percent, in the three months ending in September.

United's per-share profits on an adjusted basis came in at $3.23 a share, above the $3.07 a share analysts polled by Thomson Reuters expected. The company's adjusted EPS was boosted, in part, because fewer shares were outstanding during the quarter. United said it repurchased $407 million of its common shares in the second quarter.

"We delivered great financial results and strong operational performance in the second quarter despite the significant headwind of higher fuel prices," Munoz said in a statement.

American Airlines shares tumbled more than 8 percent last week after the world's largest carrier trimmed its revenue outlook, citing weakness in the domestic market, its largest. American's shares are off close to 30 percent this year. Delta, its closest competitor by passenger traffic, is down close to 9 percent. United shares are up nearly 8 percent, the only one of the big U.S. airlines whose shares are up so far this year.

American Airlines and Southwest both report second-quarter earnings on July 26.

United will hold a call with analysts on Wednesday at 10:30 a.m. ET to discuss its results and outlook.