A substantial beat and raise was accompanied by an announcement of a buyback.
Shares of the major airline United Airlines (UAL) experienced a rally, increasing by 13.2% as of Wednesday at 2 p.m. ET.
United Airlines disclosed its third-quarter earnings the previous night. The earnings not only exceeded expectations but also included an announcement from management regarding the company’s first buyback plan since the onset of the pandemic.
Transitioning from COVID impacts
In the third quarter, United Airlines reported $14.8 billion in revenue, a 2.5% increase from the previous year, alongside non-GAAP (adjusted) earnings per share (EPS) of $3.33, which was down by 8.8%.
Despite showing minimal revenue growth and an actual decline in profits, the outcomes surpassed analyst predictions. Additionally, the management projected an adjusted EPS of between $2.50 and $3 for the fourth quarter, which was favorable compared to the analysts’ forecast of $2.68.
The company also indicated reaching an “inflection” in multiple ways, as stated by management. According to the earnings press release, revenue trends improved as the industry reached an inflection point during the quarter with unprofitable capacity leaving the market. As airlines are a mature and fixed-cost industry, any introduction of a new competitor can lead to overcapacity, resulting in reduced profits. Conversely, when capacity is rationalized, profitability increases.
Another significant development was the company’s initiation of its first share repurchase program since before the COVID-19 pandemic. The board approved a $1.5 billion repurchase program, equating to about 7% of the company’s outstanding shares, before the surge in stock prices. Management also disclosed the repurchase of 2 million shares by retiring some warrants issued to the U.S. government in relation to the CARES Act subsidies provided during the pandemic.
Outlook on the near future
The debt and dilution perceived during the pandemic placed airline stocks like United Airlines at a disadvantage. Even with the recent surge, United Airlines shares are still trading approximately 25% below their all-time highs recorded in 2018.
However, the third-quarter results and the commencement of the first buyback since the pre-COVID era strongly suggest that United Airlines and similar airlines are finally moving beyond the significant impacts of the pandemic.
