United Airlines Earnings Preview: Will Travel Trends Fuel a Breakout?
United Airlines Earnings Preview: Will Travel Trends Fuel a Breakout?
By:Gus Downing
UAL’s stock price could move post-earnings because of forward guidance, labor expenses and aircraft delivery schedules
- United Airlines reports earnings tomorrow, after market close.
- Delta Air Lines pushed the entire sector higher with a positive earnings report last week.
- Factors that could move UAL post-earnings include forward guidance, labor expenses and aircraft delivery schedules.
Airlines have been surrounded by primarily negative sentiment in the market for some time. From the COVID downturn to doors blowing off of Alaska Airlines (ALK) flights, coverage has been generally bearish-leaning. But the tide is starting to turn for airlines, spearheaded last week by a positive earnings report from Delta Air Lines (DAL).
Now, all eyes turn to United Airlines (UAL) as it reports Q2 earnings tomorrow, after market close. If the company can keep the momentum established by DAL, the entire sector could fly; if it can’t, the industry could begin to stall out.
Can United catch Delta’s updraft?
It would be impossible to discuss United’s earnings call tomorrow without acknowledging Delta Airlines’ Q2 earnings report, which was released July 10. DAL beat expectations for both revenue and earnings per share (EPS), reported that jet fuel costs are easing and issued strong forward guidance for the rest of the fiscal year.
This sparked a sector-wide rally which extended to UAL, and now the question becomes whether UAL can sustain that momentum with its earnings report tomorrow. UAL moved up 14.3% on DAL’s strong numbers but remains over 20% below its 52-week high of $116. The broader market also continues to make new highs, boosting investor sentiment surrounding UAL’s upcoming report.
Margins, metrics and momentum: What analysts expect
In Q1, UAL beat EPS estimates by over 20% despite narrowly missing revenue estimates, and its numbers indicated a 5.4% increase in revenue year-over-year. Operating margins also improved, with a pre-tax figure of 3.6% and an adjusted pre-tax income of $391 million.
Consensus analyst estimates for UAL’s Q2 report include revenue of $15.36 billion (which would be a 2.2% increase year-over-year) and an EPS of $3.81.
While these numbers are obviously the most critical elements of the call, investors and analysts will also have their eyes on a few other key factors, including fuel costs, labor inflation and delivery delays. Changes in any of these metrics could also spell trouble.
Can UAL keep climbing? Key risks and rewards
The entire airline sector, UAL included, has broken above key 200-day moving averages following the rally caused by DAL’s recent earnings report. With UAL, the market is searching for clarity on its full-year outlook. If it restores guidance, there’s the potential for a further move up. If it does’t, that would be quite the letdown and that sentiment would likely manifest itself in the share price.
Bullish factors for UAL include strong summer travel trends and continually dropping jet fuel costs. Risk factors include labor-expense pressure, potential aircraft delivery delays and slower consumer demand. Which set of factors prevails in UAL’s earnings call will be the primary determinant of which way the company moves afterward.
Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus
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