Adjusted 4Q23 EPS of US$2.00 ahead of consensus; FY24F guidance better-than-expected given weak 1QFY24
- Adjusted 4Q23 EPS of US$2.00 outperformed street’s estimate of US$1.69
- Passenger yields stayed resilient, despite softening domestic and international passenger load factors
- FY24 adjusted EPS guidance of US$9-11 more optimistic than anticipated, given their expectation of deeper losses in 1Q24 on grounding of planes
Adjusted EPS of US$2.00 in 4Q23 outperformed street’s estimate. United reported adjusted EPS of US$2.00 in 4Q23 (compared to US$2.67 in 4Q19 and US$2.46 in 4Q22), surpassing consensus estimate of US$1.69. For the full year, adjusted EPS of US$10.05 came in at the lower end of US$10-12 target set by management at the start of 2023, but also surpassed the street’s estimate of US$9.88. Total revenue reached US$13.6bn (+10% y-o-y) in the quarter, supported by higher passenger revenue (+11% y-o-y) and other operating revenue (+11% y-o-y), partially offset by lower cargo revenue (-15% y-o-y). This outperformance was driven by resilient passenger yields, maintaining at levels similar to those in the same period last year, in spite of a softening in passenger load factors across both domestic and international segments. Unit costs remained relatively stable during the quarter, with lower fuel costs balancing out increases in staff costs due to new pilot contracts, as well as higher landing and maintenance fees. Though United still generated negative cash flow of US$1bn in the full-year, overall credit metrics improved with the group’s adjusted debt to EBITDAR declining to 2.9x as at end-Dec-23 from 4.3x as at end-Dec-22.
FY24 adjusted EPS guidance of US$9-11 more optimistic than anticipated, given their expectation of deeper losses in 1Q24 on grounding of planes. Management guided for an unprofitable 1Q24 with adjusted EPS of -US$0.85 to -US$0.35 (compared to 1Q23: -US$0.63), partly driven by the grounding of the Boeing 737 Max 9 planes in Jan-24. While unit revenue is expected to remain stable, unit cost is projected to increase mid-single digit in 1Q24. However, management believes that full-year FY24F should see flattish y-o-y adjusted EPS of US$9-11, which is more upbeat than the street’s estimate of US$9.45 and surprisingly strong given the expectation of deeper losses in 1Q24. After leading the other US network carriers in passenger capacity expansion in FY23, the group is poised to continue this growth throughout the year with the deliveries of the B787, B737 Max, and A321neo aircraft. However, this is expected to result in even higher levels of capex in FY24. Consequently, this will constrain the group’s free cash flow generation and impact shareholder returns, which is a key reason for our neutral stance on the stock.