United posts Q1 beat, but expectations 'were pretty low'

United Airlines (UAL) reported better-than-expected first-quart results, beating estimates on both the top and bottom lines. The company posted revenue of $12.54 billion, exceeding the analyst estimate of $12.44 billion. On the bottom line, United reported an adjusted loss of $0.15 per share, outperforming the expected loss of $0.57 per share.

To provide insights on the airline's performance, Third Bridge Global Sector Lead for Industrials, Materials and Energy Peter McNally joins Market Domination.

McNally acknowledges that while United's earnings beat expectations, the expectations "were pretty low" in light of the "high-profile issues" the company faced during the quarter, including challenges with the Boeing (BA) 737 Max-9 fleet. However, he emphasizes that the key going forward will be United's outlook on capital expenditures and aircraft deliveries.

McNally emphasizes the ongoing airplane shortage, as "Boeing's issues pre-date the pandemic" and Airbus cannot meet the entire industry's demand. As a result, he notes that United will be "pushing out capex" to secure the necessary aircraft to meet steady consumer travel demand.

Looking ahead, McNally forecasts heightened scrutiny and oversight from the government and the Federal Aviation Administration, noting that "it's not making it any easier to be an airline these days."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Angel Smith

Video transcript

- United Airlines results topping first quarter estimates, despite a $200 million impact from the temporary Boeing grounding. Airline also noting several adjustments to its long-term fleet strategy. Here for a closer look let's bring in Peter McNally, Third Bridge Global Sector Lead for Industrials, Materials, and Energy. Peter, it's good to see you. So listen, they report investors clearly like it. The stock is popping in the after hours. Give us your take on the results, Peter.

PETER MCNALLY: Well, I think it comes down to expectations, and they were pretty low. Let's face it. These are some high profile issues that they faced. During the quarter around the Boeing 737 MAX 9, maybe not quite as bad as those low expectations. But the key thing, or the key things going forward, will be the outlook. And clearly they're going to get fewer planes than forecast. So we've seen CapEx get cut.

Eventually, they're going to spend that money. So instead of nine billion it looks like 6 and 1/2 will be the number this year, and they'll get 40 fewer planes. But if they want to get to their 2026 targets, they're still going to have to take delivery on that. And that's dependent on Boeing, and we all know what is happening there these days.

- Yeah, definitely. I mean, we see that they're planning on CapEx going further out to 2025 to 2027, still at $7 to $9 billion per year. But how much faith can we have in a forecast that far out, at this point?

PETER MCNALLY: Look, there is a shortage of planes. There's no, there's no doubt about it. And it's not something that Airbus can just fill. Capacity takes a long time to add. And, and Boeing's issues, like predate the pandemic. They would have run into this situation had it not been for the 737 Max crashes that they had in 2018. It's just manifesting itself right now that they can't deliver all these planes. So we've seen the value of existing aircraft and engines go up as a result.

So one area that our experts have pointed us to have been leasing, that they do have pricing power there. But look, United is still going to need these planes, and that's why they're just pushing out CapEx. If there's one thing we've learned from the pandemic, people still want to travel by air. And arguably it's come back even stronger. Business is a little different. It's a smaller part of the top line, but still important for profits. But passengers do want to travel, and that's what we're seeing.

- And Peter another issue here the FAA increasing oversight Peter after these series of headline making mishaps any line of sight into what comes next there?

PETER MCNALLY: It's just more scrutiny from the government all over this industry, right? And it's not just United and Boeing, I mean, there have been lots of things around the mergers, and financings that are going on here. So it's frankly, just a fact. It's a regulated business anyway. There are issues with air traffic controllers as well.

It's not making it any easier to be an airline these days. The underlying positive thing here, as you said earlier, it's just people want to travel. And you're seeing healthy demand, pricing is actually firming now because we can't get enough of, enough of these planes. But the government is likely going to slow down the amount of capacity that, that's available to consumers.