United Shares Fall on Glum Outlook Despite Strong Fourth Quarter (Update 1)

Updated to include first-quarter unit revenue guidance and analyst comment.

CHICAGO (TheStreet) -- United (UAL) beat Wall Street's earnings estimates as it reversed a year-earlier loss despite declining Pacific revenue. But shares were falling in premarket trading as the carrier issued disappointing current quarter unit revenue guidance. 

The carrier said fourth-quarter net income excluding items was $298 million, or 78 cents a share. Analysts surveyed by Thomson Reuters had estimated 65 cents. Revenue rose 7.2% to $9.3 billion, in line with estimates.

In the same period a year earlier, excluding items, United reported a fourth-quarter loss of $190 million, or 58 cents a share, as revenue fell 2.5% to $8.7 billion.

Including items, United reported net income of $140 million, or 37 cents a share ,in the fourth quarter of 2013 compared with a year-earlier loss of $620 million, or $1.87 a share.

Shortly after the opening bell, United shares were down $1.38 to $47.80,  reflecting disappointment regarding an investor update filed Thursday morning.  In the update, United projected first-quarter passenger revenue per available seat mile would be flat to up 2% on a capacity gain of 1%.

"To put this into perspective, Delta (DAL) recently guided to 1Q RASM of 2% to 4% on a roughly 2.5% increase in capacity" wrote Avondale Partners analyst Fred Lowrance, in a note. "We continue to need to see consistent outperformance from UAL relative to its closest peers in order to gain greater confidence in its ability to deliver on its robust earnings growth potential."

Cowen and Co. analyst Helane Becker wrote Thursday morning that "we  expect the shares to be weak this morning as the outlook for 1Q14 appears to be lower than expected.

"United's 4Q13 results were very strong and show what the company is capable of when PRASM shows steady/stable improvement," Becker said. "We are beginning to question the growth strategy in the Pacific market as it appears to be a drag on the business."

During the quarter, consolidated PRASM increased 3.2%, led by a 7% gain in Latin America. Domestic PRASM gained 4.5%, with passenger revenue of $3.2 billion. Atlantic PRASM fell 5% and Pacific PRASM fell 5%.

Overall Pacific revenue fell 2.8% to $1.1 billion. Domestic revenue gained 7% to $3.2 billion, Atlantic revenue gained 7% to $1.3 billion and Latin America revenue gained 5% to $622 million.

Consolidated capacity gained 2.6%. Ancillary revenue per passenger rose 15% to nearly $21 per passenger.

On the cost side, consolidated cost per available seat mile -- excluding special charges and third party business expense and holding fuel and profit sharing constant - rose 0.1%. Total operating expense fell by $73 million or 0.8%.

"We closed out 2013 on a strong note with solid earnings improvement," said Chief Financial Officer John Rainey, in a prepared statement. "We are eager to build upon the groundwork laid last year by delivering even better financial results in 2014 and continuing to make significant improvements in our capital structure."

For the full year, United reported net income excluding items of $1.1 billion, up 84% from the previous year. Including items, net income was $571 million. Revenue gained 3% to $38.3 billion. United earned 10% on invested capital in 2013.

Written by Ted Reed in Charlotte, N.C.

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