United Continental's Report Is Deceiving

Shares of resurgent legacy carrier United Continental Holdings (NYSE: UAL  ) closed up more than 7% yesterday, the result of enthusiasm for an earnings report that isn't nearly as good as it looks.

And it does look good at first glance. Revenue surged 15% and adjusted earnings swung from a $0.60-per-share loss to a $0.44-per-share gain. United Continental's mainline load factor also improved a tenth of a percent to 82.7%. (Confused? Click here to get the skinny on all sorts of airline operating metrics.)

UAL also confirmed big orders with Airbus and Boeing (NYSE: BA  ) . Despite the aircraft's well-documented problems, United Continental plans to acquire 25 of Boeing's fuel-efficient 787s. The implication? We have more than enough funding to expand and modernize our fleet, thank you very much.

Before you clap
Frankly, everything seems fine with UAL's report until you stack it up against what Delta Air Lines (NYSE: DAL  ) reported last week. Delta also booked a double-digit revenue gain and reversed prior-year losses in Q4. Yet its peer failed to impress the Street the way UAL has. The difference? Delta missed analyst expectations for profit.

Whether that actually means anything is debatable. Wall Street was embarrassingly low in projecting United Continental's Q4 profit, calling for just $0.23 a share. And that's not even the worst part.

(Clears throat) The aforementioned "worst part" ...
More galling is what the Street is choosing to pay attention to. I'll grant that Delta's results weren't great, but at least the carrier produced free cash flow ($52 million in the quarter, according to management's assertions).

United Continental can't make that claim. Not only did the carrier strip cash flow calculations out of its press release (a troubling change from Q3), but what little information we do have shows UAL's liquid resources dipped from $9.1 billion in the third quarter to $8.7 billion in Q4.

Something's burning at United, and it smells like cash. Should investors care? Use the comments box below to let us know what you think. You can also rate United Continental in Motley Fool CAPS.

Interested in more info on the stocks mentioned in this story? Add United Continental, Boeing,or Delta Air Lines to your watchlist.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool.

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Read/Post Comments (15) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 27, 2011, at 12:36 PM, leebs33 wrote:

    The so called ominous "over-sight" regarding the reduction in cash, being reduced by about $400 mil was clearly stated in their earnings announcement. I think their blatant statement of incurring a loss of nearly $323 million do to restructuring costs clearly explains a reduction in cash

  • Report this Comment On January 27, 2011, at 1:04 PM, donnie777 wrote:

    Leave it to the fools to find fault with ual, this company has done nothing but improve is product, its stock performance speaks for its self. your writers dont know what there talking about, I am making money.

  • Report this Comment On January 27, 2011, at 1:10 PM, TMFMileHigh wrote:

    @leebs33,

    Thanks for writing.

    >>I think their blatant statement of incurring a loss of nearly $323 million do to restructuring costs clearly explains a reduction in cash

    No, it doesn't. Restructuring costs are an accounting charge. Cash payments due to restructuring would be found on the cash flow statement, but UAL didn't publish one.

    And let's be clear, there's nothing 'ominous' about the lack of a cash flow statement. It's just stupid policy that makes deciphering the financials needlessly difficult.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 27, 2011, at 1:45 PM, mlb45 wrote:

    So tell me fools, what is it about UAL that you hate so much. This site does nothing but complain about UAL and talk it down. Granted it has it's problems, but I have seen a marked improvement over the last few years. Would I invest in them probably not. I don't think I have ever read a positive thing on this site about UAL. Why is that. Did someone have a bad flight, didn't get his/her free upgrade to First.

  • Report this Comment On January 27, 2011, at 2:02 PM, TMFMileHigh wrote:

    @mlb45,

    Just so we're clear:

    http://www.fool.com/investing/general/2010/10/22/its-officia...

    http://www.fool.com/investing/general/2008/04/01/tuesdays-be...

    http://www.fool.com/investing/general/2006/09/25/heavenly-bl...

    United has frequently deserved the beatings its taken here. A good example that proved to be a very profitable call:

    http://www.fool.com/investing/general/2008/01/14/worst-stock...

    Having said that, I think we've tipped our caps each time it was appropriate to do so, including the instances above.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 27, 2011, at 2:59 PM, mlb45 wrote:

    Although I wouldn't invest in them today. I did buy 10000 @ ~$3.00 and am still hanging on to it. Ultimately it's all about making money isn't it. So I guess had I followed all the advice on Fool.com I wouldn't have bought at that price.

  • Report this Comment On January 27, 2011, at 5:04 PM, iflyuasea wrote:

    No fools like OLD FOOLS ! Your trashing and burning US companiew is getting over the top. Guess what, if a company is making a buck, investing in the future, and focused on it's cistomer. You should be yelling from the rafters. However, your tyope of analysis is why this country is in trouble. Companies need to takje the view that the new management team at United has taken.

    Or do you too fools still refuse to learn?

  • Report this Comment On January 27, 2011, at 5:07 PM, TMFMileHigh wrote:

    @iflyuasea,

    >>Your trashing and burning US companiew is getting over the top

    Proof please. Oh right, there is none.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 27, 2011, at 6:01 PM, donnie777 wrote:

    Glad to see there are others out there that believe ual is a good company and is headind in the right direction, this stock price will increase as time passes, I will stay put with my 10398 share till 35.00. When I read the crap the fool puts out I just have to laugh.

  • Report this Comment On January 27, 2011, at 6:51 PM, traderdave7 wrote:

    Tim,

    Do you have any family members that are retired from UAL?

  • Report this Comment On January 27, 2011, at 7:21 PM, Airtime101 wrote:

    Can anyone tell me how much of the $323 million in "restructuring" costs went to management as bonuses / buyouts? I always find it incredible how such a large percentage of the the work of thousands can go to the few on top. Sounds like a great club if you can get into it!

  • Report this Comment On January 27, 2011, at 8:58 PM, flyboymike wrote:

    UAL is slowly imploding. The comparison with Delta is important. On the face of it the UAL network is superior to that of Delta yet UAL management can't compete with DAL in terms of growth, customer service, or profitability. DAL management is vastly superior to UAL and it shows. Over time it's going to become glaringly obvious. The management at UAL are bean-counters and DAL (fortunately) has airline people running it. UAL management are more interested in lining their own pockets than building a great airline! This dog will be bankrupt inside five years!

  • Report this Comment On January 28, 2011, at 5:57 AM, TMFMileHigh wrote:

    @ traderdave7,

    >>Do you have any family members that are retired from UAL?

    Yes, my Dad retired from UAL in the '90s after 35 years of service.

    I have find memories of the company as a kid, and still prefer flying United if I can. What I won't do is allow those feelings to get in the way of responsibilities as an investment analyst and writer to call shenanigans if something looks funny.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 28, 2011, at 5:59 AM, TMFMileHigh wrote:

    Sorry, that should read *fond* memories and *my* responsibilities. Typing before coffee = bad combination.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 31, 2011, at 6:17 AM, Skibird767 wrote:

    Sounds like the Delta cheerleader doesn't understand that UAL/CAL IS the largest network in the world. Its percentage in growth can be small and still exceed DAL in ASM's. When DAL can reach out and touch as many places on this earth as the STAR Alliance, then we'll talk.....

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