United Airlines (NASDAQ:UAL) stock had such a fantastic day on Wednesday that it lifted other airline stocks, including American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL). With UAL shares soaring 16% by midday, clearly there was something within the air that put investors in mood.
To a certain extent, it was a relief rally. Indubitably, some United Airlines stock traders had low expectations for the airline carrier as a difficulty with a specific Boeing (NYSE:BA) jet model was sure to wreak havoc on United’s top and bottom lines.
Yet, when markets fear the worst, sometimes it’s only a setup for outcomes that aren’t as bad as anticipated. Such is the case, it seems, with United Airlines because the harried carrier manages to avert an early-year share-price crash landing.
A $200 million problem
To recap, United Airlines was forced to ground its fleet of 737 MAX 9 planes manufactured by Boeing for 3 weeks. This was as a result of an incident in January when a door plug tore off of an Alaska Airlines plane owned by Alaska Air Group (NYSE:ALK).
After all, this was massively disruptive to United Airlines. The airline ended up having too many staff and never enough planes for some time. Moreover, United ended up having to vary its fleet-order plans.
“[D]ue to the delay of the certification of the 737 MAX 10 aircraft and continued supply chain issues, the Company currently expects a discount in deliveries from Boeing in the course of the next couple of years,” United Airlines warned investors.
Nonetheless, United Airlines CEO Scott Kirby remained confident within the face of adversity. “We’ve adjusted our fleet plan to higher reflect the fact of what the manufacturers are capable of deliver,” Kirby assured in a press release from the corporate.
It’s a part of a CEO’s job description to look calm when things are (literally) falling apart. On this instance, nonetheless, Kirby’s confidence might actually be justifiable.
Because it seems, the negative financial impact on United Airlines of the Boeing 737 MAX 9 grounding totaled “roughly $200 million.” Without that negative impact, the corporate claims, United would have been profitable in 2024’s first quarter.
Sure, $200 million is a whole lot of money, but it surely’s probably not as much as some bearish-leaning UAL stock traders had expected. Thus, there have been likely some pre-earnings bearish bets in place, followed by short-sale covering after United Airlines indicated that the Boeing impact wasn’t as severe as previously feared.
What was, and what may need been
Since United Airlines claims that it might have been profitable if it weren’t for the Boeing impact, it’s interesting to contemplate how much income United Airlines would have earned in 2024’s first quarter. So, with that in mind, let’s delve into the info.
Starting with the top-line results, United Airlines’ total operating revenue grew 9.7% 12 months over 12 months to $12.5 billion. That’s not too shabby, given the difficult circumstances. Besides, this revenue result’s in keeping with Wall Street’s consensus forecast.
Drilling all the way down to the underside line, United Airlines sustained a net lack of $124 million, or 38 cents per share, in Q1 of 2024. That doesn’t sound like a perfect result at first glance.
Nevertheless, now let’s go ahead and factor out that $200 million hit from the Boeing-related issues. My old calculator says that United Airlines would have had a $76 million profit.
Shifting back to reality, United Airlines’ quarterly earnings lack of 38 cents per share wasn’t all that bad when put into context. The corporate had previously guided for a first-quarter lack of 35 to 85 cents per share, so 38 cents is toward the lower end of that range. Moreover, analysts forecast that United would lose 58 cents per share, so the actual result was a beat.
Also, United Airlines evidently expects to get back on the right track to profitability in the present quarter. The carrier guided for second-quarter 2024 earnings of $3.75 to $4.25 per share, a spread that’s higher than the analysts’ consensus estimate of $3.73 per share.
Naturally, issues can occur and these forecasts may very well be far off base. Fuel prices could fluctuate, and there’s all the time the opportunity of more plane-component failures.
But then, investing is unimaginable if we worry an excessive amount of about uncontrollable future occurrences. What matters, in the intervening time, is that United Airlines is making the needed adjustments and preparing for a (hopefully) less perilous future. So, without overthinking what may need been or what might occur within the near term, this might actually be time to contemplate a portfolio position in UAL stock.
Disclaimer: All investments involve risk. Under no circumstances should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.