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Chicago (TheStreet) -- Wall Street analysts cheered United's (UAL) - Get United Airlines Holdings, Inc. Report second-quarter results. Investors too reacted favorably, pushing shares up 10% on the day results were announced. But United pilots remain deeply skeptical.

United reported that second-quarter net income rose 51%, and the carrier beat analyst estimates. United shares started the week of July 23 at $44.25. After the earnings report on July 24, shares opened at $48.93. They have fallen back since then, closing Monday at $46.55, up 23% year-to-date.

In a recent report, Wolfe Research analyst Hunter Keay echoed an increasingly common thought, saying, "We feel United has turned the quarter." Keay called the earnings call "the best we've heard since the merger" with Continental in 2010. Meanwhile, Stifel Nicolaus analyst Joseph DiNardi wrote that United's "solid quarter illustrates progress being made." He has a buy rating and a $60 price target.

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United pilot leaders see things differently. In an e-mail, officers of the Chicago chapter of the Air Line Pilots Association reminded members that United profits are "still lagging well behind Delta (DAL) - Get Delta Air Lines, Inc. Report and American (AAL) - Get American Airlines Group, Inc. Report." Although revenues for the three carriers are similar, United's year-to-date net income of $430 million compares unfavorably to $1.5 billion and $1.8 billion, respectively, at the competitors, the pilot leaders said.

In the first quarter of 2014, United lost $489 million while Delta and American reported record results. Earlier, United earnings declined for nine consecutive quarters starting in the second quarter of 2011.

"There is nothing wrong with being third, but a distant third that continues to lag further and further behind our two largest competitors places us in a very precarious position," wrote Chicago ALPA chapter chairman Eric Popper, vice-chairman Carlos Rodriguez and secretary/treasurer John Briggs. A copy of their e-mail was obtained by TheStreet.

Pilots have been particularly critical of CEO Jeff Smisek. In a letter to pilots on May 9, following a closed-door meeting of United pilot leaders, Jay Hepner, chairman of the United ALPA chapter, said pilots have "developed a strategic plan to make our airline better." The plan included "making ALPA part of the collective solution in developing the infrastructure and processes (and) resolving the major shortcomings that are bleeding this company," Hepner wrote.

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On the second-quarter call, a reporter asked Smisek to discuss his relationship with pilots and whether consultation with pilots had contributed to the improvement.

"I think we have a good relationship with ALPA," Smisek said. "We are in close consultations with our pilots on many matters.... We want to make sure that we have the right culture with everybody at this company, including our pilots, and I think we're making good progress."

Smisek attributed some issues with pilot scheduling to "moving everyone to a single crew management system," part of the merger integration process, early this year, and to Federal Aviation Administration pilot scheduling requirements that took effect in January. "We had some hiccups in some of those implementations, which adversely affected some of our pilots," Smisek said.

However, he said, "All our folks in ops and our technology worked together hard to make [pilots'] lives more predictable and reliable." He added that focusing on operational reliability and on-time performance "makes the pilots' lives better, makes the flight attendants' lives better, makes our passengers' lives better."

In their message, the Chicago pilot leaders said the explanation was "nothing but spin, the same spin and excuses [Smisek] has been feeding investors and analysts in an effort to keep his job." They decried United's planned $1 billion stock buyback plan as a way "to placate unhappy investors" and said the money should be saved "for the inevitable day the economy does falter for our industry."

Additionally, the letter said, Smisek has a "Picasso-esque view of pilot happiness. We have over 600 open grievances filed (213 filed in 2014 alone) due to his violating our 19-month old contract, which has yet to be fully implemented because of his failed [internal technology] system."

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The letter listed a dozen areas of dissatisfaction, and was particularly critical of the IT systems, which by many employee accounts have not kept pace with the demands of the merger. Some areas of dissatisfaction involve functions that have been contracted to third parties, while others are subjects of pilot grievances. The list includes crew scheduling, crew training, payroll, aircraft maintenance and outsourced customer service, as well as schedule reliability, broken simulators, lack of pilot instructors and disregard for captain's authority.

"Our infrastructure is a failure," the letter said.

Imperial Capital analyst Bob McAdoo, who has called for United to close its hub at Washington Dulles International Airport, said United's second quarter earnings of $2.32 a share surpassed his estimate of $2.10 as well as the consensus estimate of $2.18. "The beat to our estimate, and consensus, appears to be largely driven by non-operating income," McAdoo wrote in a report, where he reminded United's pre-tax income lags peers.

United followed some of the suggestions McAdoo outlined in earlier reports. The carrier said it will reduce regional flying, removing 130 50-seat regional aircraft over the next 18 months, and will use fewer regional partners.

As far as the future of the Dulles hub, two analysts raised the question, and both times United executives did not specifically respond.

Rather, Smisek declared: "I would say that nothing is off the table, and we'll take the actions that we need take to maximize the value of our enterprise for our shareholders.

"We have demonstrated an ability and willingness to take tough actions," Smisek said. Referring to the decision to close the Cleveland hub, he said: "Cleveland's a good example of that. We have a lot of initiatives underway, and we're taking a look at a lot of others.

"This team is committed to improving our margin performance [and] to improving our value for our shareholders," Smisek said. "We will take whatever actions are necessary to do just that."

Written by Ted Reed in Charlotte, N.C.
To contact this writer, click here.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

TheStreet Ratings team rates UNITED CONTINENTAL HLDGS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate UNITED CONTINENTAL HLDGS INC (UAL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UNITED CONTINENTAL HLDGS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, UNITED CONTINENTAL HLDGS INC turned its bottom line around by earning $1.30 versus -$2.32 in the prior year. This year, the market expects an improvement in earnings ($4.20 versus $1.30).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Airlines industry average. The net income increased by 68.2% when compared to the same quarter one year prior, rising from $469.00 million to $789.00 million.
  • The revenue growth significantly trails the industry average of 39.3%. Since the same quarter one year prior, revenues slightly increased by 3.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 66.11% and other important driving factors, this stock has surged by 28.45% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • The gross profit margin for UNITED CONTINENTAL HLDGS INC is currently lower than what is desirable, coming in at 27.53%. Regardless of UAL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, UAL's net profit margin of 7.63% compares favorably to the industry average.