UAL stock off despite first profit in 6 years

`Didn't do enough,' airline analyst says

August 03, 2006|By MARK SKERTIC | MARK SKERTIC,CHICAGO TRIBUNE

Ten days ago, United Airlines reported that it made $119 million in the second quarter - marking its first profitable period in six years.

Apparently, investors expected better.

In the days since those results were announced, the stock of United's parent, UAL Corp., has lost more than 15 percent of its value, closing yesterday at $24.25. That price is the lowest the stock has reached since United left bankruptcy protection in February and began trading on the Nasdaq stock exchange.

When United announced preliminary earning results July 26, "there probably were some people who had overestimated what United was going to do, and very few who had underestimated," said John Pincavage, an aviation analyst.

In short, United's results were not impressive enough, given that nearly all its competition also reported profits during the quarter, Pincavage said.

"They didn't do enough," he said. "That's the bottom line."

United's second-quarter results beat analysts' consensus estimates of 64 cents a share. The carrier's diluted earnings per share were $1.09 in the quarter.

Despite generally strong earnings reports and strong traffic in July, surging oil prices have resulted in airline stock prices remaining generally flat, although United has lagged behind its peers. The Amex Airline Index, composed of 10 stocks representing the industry, was at $48.41 yesterday, up 0.1 percent. UAL stock was down 90 cents, or 3.6 percent, for the day.

Trading in light crude oil closed at $75.81 a barrel, up 90 cents, on the New York Mercantile Exchange yesterday.

Concerns about rising fuel prices and United's costs has some analysts skittish about the carrier's stock price. A Prudential analysis labels United's stock underweight, a belief that its performance will trail the rest of the industry.

In an analysis this week, Credit Sights called United's results good but said the carrier "did not ring the bell loud enough given the strong industry quarter.

"Despite a few years in bankruptcy, [United] still has costs to chop."

Calyon Securities analyst Ray Neidl has said that although the carrier "appears to be turning the corner to returning to consistent profitability, it still has more work to do to catch up and surpass its peers."

While United showed a profit, the carrier's results were not as impressive as the numbers posted by some of its competitors. Quarterly profit at American Airlines' parent, AMR Corp., was $291 million, quadrupling results from the corresponding period in 2005. Continental Airlines' profit was $198 million, nearly double what was earned in the quarter a year ago.

Also yesterday, United announced that Mary K. Bush, president of financial consultancy Bush International, joined the UAL board of directors.

Mark Skertic writes for the Chicago Tribune.

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