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Has United Turned the Corner With Its Earnings Beat?

Tickers in this article: DAL UAL
CHICAGO (TheStreet) -- United  beat Wall Street estimates as second-quarter net income rose 51% and costs fell.

The carrier announced a stock buyback plan, leaving some analysts to wonder whether the carrier might have finally turned the corner.

Excluding items, the carrier reported net income of $919 million, or $2.34 a share. Analysts surveyed by Thomson Reuters had estimated $2.16 a share. Revenue rose 3.3% to $10.3 billion, in line with estimates.

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Including items, net income was $789 million, or $2.01 a share.

In premarket trading just before the bell, United shares were trading at $48.97, up $2.97 or 6.5%.

During the quarter, consolidated passenger revenue per available seat mile rose 3.7%.

"PRASM and company appear to be turning the corner," Cowen & Co. analyst Helane Becker wrote in a note released shortly after the earnings were reported. "We are the most bullish about the 2% to 4% expected increase in PRASM during 3Q14 as it is in line with Delta and shows the company is beginning to bridge the gap in terms of PRASM," Becker said.

Domestic PRASM rose 7.8% as domestic capacity fell 1.4%. Domestic revenue was $3.5 billion while international revenue was $3.6 billion.

International PRASM rose 1% on a 2.1% capacity increase. Latin American PRASM rose 4.4% despite a 5.6% capacity increase. Trans-Atlantic PRASM rose 2.5% but Pacific PRASM fell 2.6%.

"We are beginning to see the benefits of the changes we're implementing to our network and revenue management processes," said Jim Compton, chief revenue officer, in a prepared statement.

United's board authorized a $1 billion share repurchase program, which the company expects to complete within the next three years. The amount represents about 6% of United's market capitalization at Wednesday's close.

"I am encouraged by the solid progress we made in the second quarter," said CEO Jeff Smisek, in a prepared statement. "Our team is focused on improving our operations and service and on continuing to improve year-over-year revenue performance and cost control.

"The $1 billion share repurchase program we announced today demonstrates our progress and commitment to increasing value for our shareholders and the confidence we have in our plan," Smisek said.

On the cost side, consolidated cost per available seat mile excluding fuel, special charges, profit sharing and other expenses fell 0.2% as consolidated capacity fell by 0.1%.

The carrier generated $1.5 billion of operating cash flow in the second quarter of 2014 and earned a 10.3% return on invested capital for the 12 months ended June 30. UAL ended the second quarter with $6.8 billion in unrestricted liquidity.

Written by Ted Reed in Charlotte, N.C.

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