United Airlines Holdings Inc. executives expect to report a profit this year, a surprise to investors who pushed the company’s stock up more than 7% in after-hours trading Wednesday.
reported a first-quarter loss of $1.38 billion, or $4.24 a share, an improvement from a loss of $7.50 a share a year ago. Revenue rose to $7.57 billion, up from $3.22 billion a year ago. Analysts on average were expecting a loss of $4.22 a share on revenue of $7.67 billion, according to FactSet.
It is the ninth consecutive quarter that United has posted an adjusted loss, but executives surprisingly promised that their year would end in the black.
“The airline has a bullish outlook on the future — bolstered by this persistent strength of demand and the fact that it is nearing 2019 operating margins — and once again reiterated confidence in its longer term United Next targets of adjusted pretax margin of approximately 9% in 2023 and about 14% in 2026,” the company stated in the release. “This confidence is underpinned by the company’s current expectation to report a profit for the full year 2022.”
Analysts on average were predicting an annual loss of nearly $900 million, $2.52 a share, heading into the report, according to FactSet. Shares jumped more than 7% in after-hours trading immediately following the release of the results, after closing with a 1.2% increase at $46.52.
Forecasts have been more important than results for airlines as the effects of the COVID-19 pandemic lessen. After Delta Air Lines Inc.
issued a stronger-than expected revenue forecast last week, airline stocks received a bump, including United, which has gained roughly 9% since Delta reported.
United did not provide a full, delineated forecast in Wednesday’s report, despite including the information in previous similar releases. The bits that United did include in the release were enough to excite investors, though.
“We’re now seeing clear evidence that the second quarter will be an historic inflection point for our business,” Chief Executive Scott Kirby said in a statement. “It leaves me more optimistic than ever about United’s future.”
Executives plan to hold a conference call at 10:30 a.m. Eastern time Thursday, where they expect to discuss the “financial and operational outlook for second quarter 2022 and beyond,” according to Wednesday’s news release.
Concerns about airlines’ earnings recovery persist because of the rising cost of jet fuel. In Wednesday’s guidance, United executives said that fuel cost $2.88 a gallon in the second quarter, much higher than the $2.51-a-gallon forecast executives provided three months ago and the $2.41 a gallon that United paid on average in the fourth quarter of 2021.
JP Morgan analysts said in a preview of airlines earnings last week that “$4.00 jet fuel now populates our models in the near-term,” but they expect the costs to go down later in the year.
“The near-term problem is fuel, but we remain constructive assuming economic trends remain stable and fuel prices recede later this year (two significant caveats),” the analysts wrote, while retaining an Underweight rating and $60 price target on United stock.
Despite the negative rating on United, the analysts like the current outlook for airline stocks in general.
“Demand trends continue to accelerate, supply is likely to improve even further than it already has, ex-fuel cost trends are, well, unimpressive but understood, consolidation is under way, and return-to-office momentum portends a healthy corporate recovery once the summer lull passes, in our view,” they wrote on April 11. “This represents a compelling setup for most airline equities.”
United shares have declined 7.6% in the past 12 months, as the S&P 500 index
has gained 7.9%. So far in 2022, those moves have basically reversed, with United gaining 6.1% so far this year as the S&P 500 fell 6.4%.