UAL Stock Falls 7% on Forecast

CHICAGO â€”  UAL Corp. hit a new patch of rough air Friday and its shares plunged 7% after the owner of United Airlines warned it expected a third-quarter loss from flight cancellations, delays and higher costs for jet fuel and wages.

Swamped by thousands of labor- and weather-related flight cancellations this summer, the world’s largest airline also said it may post a loss in the fourth quarter. The last time the company lost money was in 1993.

UAL shares fell $2 to close at $42 on the New York Stock Exchange. Earlier in the day, its shares hit $40.25, a new low for the year.

The company, which has agreed to acquire US Airways Group Inc. for $4.3 billion, warned in July that it will fall short of analysts’ earnings forecasts for the second half of the year.

Analysts on average expected United to earn 97 cents a share in its third quarter, according to First Call/Thomson Financial, with estimates ranging from 30 cents to $2.

Analysts’ consensus estimate for United’s fourth quarter was 63 cents a share, according to First Call/Thomson Financial. Estimates ranged from a loss of 20 cents to $2.35.

One analyst said he was surprised by United’s latest forecast. “I knew that the situation was deteriorating there, but I wasn’t expecting a loss,� said Ray Neidl, an analyst with ING Barings.

Neidl said he believed the cost of the pilots’ new labor contract and the cost of winning back customers who were angered by United’s problems this summer were greater than expected.

But Merrill Lynch airlines analyst Michael Linenberg said in a research note he was not surprised. After downgrading United’s rating to “accumulate� from “buy� on Friday, he cut his estimate for the company’s third quarter to a loss of 50 cents a share from a profit of 30 cents.

He also cut his full-year 2000 earnings estimate to $4.75 a share, from $5.80, and his 2001 estimate to $6.50 from $8.

“The third quarter has been a difficult period for United,� James Goodwin, UAL chairman and chief executive, said in a statement. “The disruptions to our operations throughout the quarter greatly inconvenienced our customers and front-line employees, reducing revenues significantly.�

Goodwin added, “On the cost side, while we are pleased that we were able to reach a tentative pilot contract, the financial implications of the agreement, coupled with the higher price of jet fuel, will further impact our results.�

United Airlines agreed on a new labor contract with its pilots union in late August, putting the pilots’ wages 10% to 12% above the industry’s top pay.

The contract came after a summer of flight cancellations and delays due in part to the pilots’ refusal to work overtime.

United said it may also be affected by other union agreements currently being negotiated.

United has been in talks with its mechanics union since January. Earlier this month, the National Mediation Board said it will assign a mediator to the talks.

The company’s flight attendants said earlier this week that they were demanding an immediate wage increase equivalent to 5% above the pay at current industry leader Delta Air Lines Inc. The two sides are meeting Tuesday.

Other airlines shares dipped in sympathy. Shares of AMR Corp., parent of American Airlines, fell $1.88 to close at $32.75; Delta closed down $1.81 at $44.38 and U.S. Airways lost $1.44 to close at $30.44, all on the New York Stock Exchange.

At a Glance

Other earning outlooks:

* Caterpillar Inc., the world’s largest maker of construction and mining equipment, said it expects its third-quarter profit to be about 15% below analysts’ consensus estimate of 68 cents per share. However, the Peoria, Ill.-based company said its outlook for the full year remains unchanged, with revenue expected to improve slightly over 1999 and profit expected to increase moderately. In 1999, Caterpillar reported sales and revenue of $19.7 billion and profit of $946 million, or $2.63 per share.

* Snack food and soft-drink maker PepsiCo Inc. is expected to post an almost 15% gain in third-quarter earnings next week, as its snack brands continue to chip in with solid growth and beverages are boosted by an easy comparison with the prior year. Analysts on average expect the maker of Frito-Lay snacks, Tropicana juices and Pepsi and Mountain Dew soda to report earnings of 39 cents a share for the quarter ended Sept. 2, according to research firm First Call/Thomson Financial. That would be a 14.7% increase from last year’s third-quarter earnings of 34 cents a share.

* After warning earlier this week that its third-quarter profit would fall short of Wall Street expectations, DaimlerChrysler’s Chrysler side said it will not meet a $2-billion cost-cutting target this year. The German-American company warned its Chrysler unit would report a loss of about $531 million for the current quarter, in contrast to a profit of $880 million last year. The head of the Chrysler Group attributed the malaise to rising interest rates and fuel costs, too much costly inventory to offset the launch of new minivans, and fat incentive spending industrywide.