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Why United Continental Stock Crashed and Burned in July

What happened

Shares of United Continental Holdings (NYSE: UAL) stock dropped 10.1% in July.

So what

United Continental reported its Q2 2017 earnings after close of trading on Tuesday, July 18. By the time trading resumed the next morning, United Continental stock had already dropped 3% -- and it hasn't stopped falling since.

If you haven't already heard, you may be surprised to learn that United Continental actually beat on earnings. Emphasizing its own special flavor of "adjusted earnings," the company reported a pro forma profit of $2.75 per share -- $0.12 ahead of analyst estimates.

The company's actual GAAP earnings were $2.66, which was nearly a 50% improvement over what United Continental had earned in the prior-year's second quarter -- and only on a 6% increase in revenues. So why did United Continental stock decline after earnings? Why is it still going down today?

Image source: United Airlines.

Now what

It's probably because of the guidance. In the course of reporting earnings, United Continental also gave new guidance for investors for its current third fiscal quarter -- and it was pretty disappointing. Among other items of note, United Continental said that its pre-tax profit margin will range between 12.5% and 14.5%, or roughly the same as it achieved in Q2, but in a summer-vacation quarter, that's supposed to be much stronger for United.

Passenger revenue per available seat mile (PRASM) isn't expected to improve much either -- plus or minus 1% compared to last year. Conclusion: Foolish airline specialist Adam Levine-Weinberg believes that "EPS will probably decline year over year this quarter."

And that's why United Continental stock crashed and burned in July.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.