United Airlines' (UAL) second-quarter profit guidance fell short of Wall Street's numbers as the company factored in higher-than-expected fuel costs, UBS Securities said in a note e-mailed Wednesday.
Late Tuesday, the air carrier said it expected adjusted earnings per share of $1 to $2 for the ongoing quarter, assuming an average jet fuel price of about $4.30 per gallon.
UBS projects EPS of $2.30, while it put the Bloomberg-polled consensus at $1.74, below the middle point of the guidance range.
The brokerage said the "buyside bar" was EPS of $1.75 to $2.25 based on a fuel price of $4.10 per gallon. Crude oil prices have soared in the aftermath of the US-Israel war with Iran.
United Airlines lowered its full-year adjusted EPS guidance to a range of $7 to $11 from $12 to $14. The wider guidance takes into consideration multiple scenarios, Chief Financial Officer Michael Leskinen told analysts at an earnings call late Tuesday, according to a FactSet transcript.
"(The second-quarter) guide was a bit lighter than the buyside bogey, but was driven by higher fuel assumption (versus) expectations," UBS analysts including Atul Maheswari wrote. (The full-year) guide broadly brackets consensus at mid-point."
UBS is projecting full-year EPS of $9.50, above the consensus view it put at $9.08.
Shares of United Airlines were down 7% in late Wednesday afternoon trade despite the company reporting stronger-than-expected first-quarter results.
"All in, we think it was a fine print," Maheswari said. "The proactive capacity cuts for (the second half) was particularly encouraging to us as it highlights the company is focusing preserving margins (and) cash in this uncertain backdrop."
The brokerage has a buy recommendation on the stock, with a price target of $135.
"Overall, estimates are unlikely to move much following this print," Maheswari said. "In the absence of earnings catalyst, we think the stock will likely trade on macro headlines for the near-term."
On the call, Chief Executive Scott Kirby said management's goal at the moment is "to do whatever it takes to recover 100% of the increase in jet fuel prices as quickly as possible, and to achieve double-digit pre-tax margins next year."
"Oil is incredibly volatile right now, but because we think we're moving towards a 100% pass-through, it allows us to have confidence in both our near- and medium-term earnings trajectory enough so that we can still provide guidance," Kirby said, according to the FactSet transcript.
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