US Airways stock nose-dives over drop in profit; 25% earnings decline, cautious outlook cause shares to fall $6.3125


Shares in US Airways Group Inc. fell nearly 11 percent yesterday after Baltimore-Washington International Airport's largest carrier reported a 25 percent drop in fourth-quarter earnings and warned that earnings estimates for 1999 are too high.

The news caused the airline's stock to close at $51.25, down $6.3125 a share. The 10.96 percent decline was due largely to reduced revenue per passenger and a higher tax rate, said Rakesh Gangwal, the company's chief executive.

Net income in the fourth quarter of 1998 was $104 million, or $1.18 a share, down from $138 million from the fourth quarter a year ago and slightly lower than some Wall Street analysts predicted.

Total revenue rose to $2.12 billion from $2.09 billion, a 1.7 percent increase, but did not translate into higher earnings because of reduced average fares attributed to an industry-wide decline in business travel.

US Airways also saw its effective tax rate increase from 15.8 percent in 1997 to 40.3 percent last year because of its profitability.

"The report was about in line with estimates, but I thought management was really negative about what to expect in '99," said Helane Becker, an analyst for Buckingham Research Group in New York. "If you look at what's happening on the East Coast, there are a lot of capacity additions taking place, so they need to express that kind of cautious outlook."

During a conference call with analysts yesterday, Gangwal said $6.40 earnings-per-share estimates for 1999 are probably too high.

US Airways, the nation's sixth-largest airline, with headquarters in Arlington, Va., is the dominant carrier at BWI with a 32.5 percent market share. The airline flew 4.5 million passengers at BWI in 1998.

The carrier has lost ground to BWI's second-largest airline, Southwest Airlines, but has begun to increase service in Baltimore through MetroJet, the low-fare spinoff airline it launched in June.

The company reported net income for 1998 of $538 million, down 15.8 percent excluding nonrecurring and unusual items the year before. Operating income was $1 billion for 1998 on revenue of $8.7 billion. The annual profit was $5.60 per share.

Pub Date: 1/21/99

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