Major Airlines Post Dramatic 1st-Quarter Losses
Major airlines posted hefty first-quarter losses as the sagging U.S. economy led their best customers--corporations and small businesses--to cut back on travel spending at the same time the carriers were struggling with rising labor and fuel costs.
UAL Corp., parent of United Airlines, led the pack with a loss of $305 million, or $5.82 a share, much worse than the lowest forecast of $5.75 and the $4.28-a-share average estimate of analysts. UAL, which had earned $136 million, or 84 cents a share, a year ago, said revenue fell 2.7% to $4.42 billion.
UAL executives said the company--now the world’s second-largest airline since rival AMR Corp. purchased Trans World Airlines--was “disproportionately impacted” by the slowdown in business traffic.
That was partly due to its size and percentage of big corporate accounts, as well as its West Coast presence serving technology companies that have been hit hard by the slowdown.
AMR, parent of American Airlines, said it lost $43 million, or 28 cents a share, in its first quarter, contrasted with year-earlier profit of $89 million, or 57 cents a share. The result was slightly better than the average analyst forecast. Revenue rose 4%, to $4.76 billion.
AMR also said it expects newly acquired TWA to operate profitably in its second and third quarters of this year.
Delta Air Lines Inc., the No. 3 U.S. airline, lost $122 million in its first quarter, its first loss in 24 quarters, contrasted with profit of $172 million, or $1.27 a share in the year-earlier period, as revenue fell 2% to $3.84 billion.
Atlanta-based Delta had previously warned it could lose as much as $110 million, but an ongoing strike by pilots at its Comair regional unit pushed the losses even higher, to $1.02 a share.
Meanwhile, federal mediators resumed contract talks Wednesday with Delta and its pilots’ union. The union has said it will strike in 10 days without an agreement or presidential intervention.
The first quarter is traditionally the worst for airlines, but analysts are not looking for dramatic improvements in the near term. They generally expect major airlines to post profits, but much lower than in the second quarter of 2000, as corporations continue to keep a tight rein on spending.
Analysts, who have been trimming earnings estimates for weeks, said numbers could continue to come down. “It looks like there will be revisions downward,” ING Barings analyst Ray Neidl said.
Some analysts are beginning to recommend buying beaten-down airline stocks, based on the possibility of a recovery within a year or two.
US Airways Group Inc., which UAL has agreed to buy for $4.3 billion, said its loss widened to $164 million, or $2.45 a share--much worse than the $1.77 average estimate--from $115 million, or $1.72 in the year-ago period as revenue increased 6.8% to $2.24 billion.
UAL said Wednesday that it no longer believes the acquisition will close by the middle of the year because the regulatory process is taking longer than expected.
Northwest Airlines Corp. said its loss widened dramatically to $123 million, or $1.47 a share, from $42 million, or 51 cents a share, but was slightly better than the mean analyst prediction. Revenue rose 4.1% to $2.61 billion.
America West Holdings Corp. lost $12.8 million, or 38 cents a share, contrasted with a profit of $14.6 million, or 40 cents, a year ago, beating forecasts of a 45-cent loss. Revenue rose 4.4% to $587.5 million.
Most airline shares rose sharply, boosted by the Federal Reserve’s unexpected interest rate cut.
On the New York Stock Exchange, UAL rose $2.74 to $36.40, AMR was up $2.86 to $37.86, Delta gained $2.05 to $43.15, and America West rose 5 cents to $9.71. Northwest gained $1.68 to $25.60 on Nasdaq. Only US Airways closed down, falling $1.61 to $33.74 on the NYSE.
At a Glance
Other earnings, excluding one-time gains or charges unless noted, include:
AEROSPACE:
* General Dynamics Corp. posted a 15% increase in first-quarter profit to $212 million, or $1.05 a share, well beyond the 98-cent average estimate of analysts, on strong performance in its military and civilian operations. Income at the combat systems business jumped 30%, due in part to an acquisition. The aerospace group’s income rose 10% as the Gulfstream unit continued to make improvements in its manufacturing process. The company also raised its full-year earnings target to $4.50 from a range of $4.43 to $4.47, compared with analysts’ expectations of $4.48.
* Raytheon Co.’s first-quarter profit rose 21% to $97 million, or 28 cents a share, led by its defense electronics business. Sales fell 6.2% to $3.97 billion.
* Rockwell International Corp. said profit fell 24% to $125 million, or 67 cents a share, after a one-time charge, while sales increased 4% to $1.85 billion. Excluding the $16-million charge related to Rockwell’s In-Flight Network joint venture, Rockwell earned 76 cents a share, a penny better than analysts expected.
* TRW Inc. said first-quarter earnings, excluding unusual items, fell 66% to $51 million, or 41 cents a share, as declining auto production hurt its automotive operations, but the results beat analysts’ expectations of 36 cents. Sales fell 8.7% to $4.2 billion. Profit in the auto parts business slid 57%, with sales off 13%.
TECHNOLOGY:
* Broadcom Corp. reported first-quarter earnings that met lowered expectations and said it will cut an unspecified number of jobs because declining sales will result in a second-quarter loss. The top maker of cable-modem chips said profit declined 46% to $24.2 million, or 9 cents a share, on a 66% increase in sales to $318.1 million. Broadcom had lowered earnings expectations a month ago to reflect weakness at its major customers.
* CDW Computer Centers Inc., a direct seller of computers and printers, said first-quarter profit rose 15% to $40.5 million, or 45 cents a share, beating analysts’ expectations of 41 cents, on a 14% increase in revenue to $987.2 million. The company said second-quarter earnings probably will miss forecasts. * Citrix Systems Inc.’s operating income fell 28% to $33.9 million, or 17 cents a share, in line with expectations. The maker of application-server software said revenue rose 4.2% to $132.8 million.
* Extreme Networks Inc. posted an operating loss of $7.1 million, or 7 cents a share, meeting forecasts that were lowered after the company warned that a slowdown in corporate spending would hurt its results. Revenue was up 67% at $112.1 million.
* Siebel Systems Inc. said first-quarter profit more than doubled to $76.9 million, or 15 cents a share, from $35.3 million, or 7 cents, beating expectations by a penny. Sales surged 84% to $589 million. The company also said it will cut executive pay by 20% and will freeze all executive bonuses to reduce costs.
* Travelocity.com Inc. reported a first-quarter operating profit of $618,000, or 3 cents a share, a far better performance than the 5-cent loss analysts expected, as revenue more than doubled to $72.9 million from $27.0 million. The company, which is 70% owned by Sabre Holdings Corp., had reported a loss of $9.07 million, or 32 cents, a year ago.
OTHER INDUSTRIES:
* Coca-Cola Co. reported a first-quarter profit of $863 million, or 35 cents a share, contrasted with a year-ago loss of $58 million, or 2 cents, beating analysts’ expectations by 2 cents. Revenue was up 5.2% to $4.48 billion, boosted by growth overseas. But the soft-drink giant lowered key growth targets for 2001 and beyond due in part to tougher economic conditions in North America.
* Gillette Co.’s earnings fell 29% in its first quarter to $182 million, or 17 cents a share, as larger-than-expected inventories of razors and declining sales of Duracell batteries continued to be a drain on profit. Gillette, which also makes Braun appliances, said sales fell 7% to $1.76 billion, hurt in part by unfavorable foreign-exchange rates. Analysts on average expected earnings of 19 cents.
* Immunex Corp. said first-quarter profit rose 24% to $39.8 million, or 7 cents a share, a penny better than forecasts, as revenue rose 22% to $217.8 million.
* J.P. Morgan Chase & Co. said operating profit fell 28% in its first quarter to $1.44 billion, or 70 cents a share, as the No. 2 U.S. bank lost money on venture capital investments and investment banking slumped. The results beat analysts’ expectations of 66 cents.
* Merrill Lynch & Co. said first-quarter profit fell 21% to $874 million, or 92 cents a share, as the stock market decline cut into the firm’s trading and investment banking profits, but the results beat Wall Street expectations of 90 cents. Net revenue fell 15% to $6.4 billion. In the brokerage unit, profit fell 27% and revenue was off 20%. Commissions fell 30%. Investment banking revenue fell 8.3%.
* Pfizer Inc., the nation’s largest drug maker, reported a 34% gain in first-quarter earnings to $2.13 billion, or 33 cents a share, 2 cents better than forecasts, boosted by sales of key drugs and cost savings from its acquisition of Warner-Lambert Co. Revenue grew 7% to $7.65 billion.
