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American Airlines (AAL) Stock Down Despite Q1 Earnings Beat

Maharathi Basu
Issues related to Boeing 737 MAX jets hurt first-quarter 2019 earnings of the likes of American Airlines (AAL), which has multiple such planes in its fleet.

American Airlines Group’s AAL first-quarter 2019 earnings (on an adjusted basis) of 52 cents per share edged past the Zacks Consensus Estimate by a penny. However, the bottom line decreased on a year-over-year basis due to high costs.

Revenues totaled $10,584 million, which missed the Zacks Consensus Estimate of $10,656.24 million. However, the top line improved 1.8% on a year-over-year basis. Passenger revenues, which accounted for bulk of the top line, increased 1.9%.

More than the revenue miss, it was the company’s decision to slash its 2019 earnings per share outlook which disappointed investors. As a result, the stock shed value in pre-market trading.

American Airlines now expects 2019 earnings per share between $4 and $6 (earlier outlook:  $5.50- $7.50). The mid-point of the guided range ($5) is below the Zacks Consensus Estimate of $5.74 per share. Updates on Boeing 737 MAX jets and fuel costs induced the company to slash its earnings guidance.

American Airlines, which currently has 24 Boeing 737 MAX jets with 76 more on order, has grounded the Boeing 737 MAX planes in its fleet through Aug 19. This, in turn, has resulted in the cancellation of approximately 115 flights per day. Consequently, the company’s 2019 pre-tax earnings are expected to be hurt by roughly $350 million.

Moreover, due to the recent uptick in oil prices, expenses on fuel for 2019 are expected to be $650 million more than what were predicted by the company in January this year. Fuel costs per gallon for the current year are now predicted to be between $2.13 and $2.18 (earlier outlook:  $1.99- $2.04).

Other Details for Q1

 Total revenue per available seat miles (TRASM: a key measure of unit revenues) increased 0.5% to 15.87 cents in the reported quarter. Passenger revenue per available seat miles (PRASM) increased 0.6% to 14.49 cents in the reported quarter. Consolidated yield decreased 1.6%.

While traffic (measured by revenue passenger miles) was up 3.5%, capacity (measured by average seat miles) expanded 1.3%. Consolidated load factor (percentage of seats filled by passengers) expanded 180 basis points to 82.2% as traffic growth outpaced capacity expansion.

Total operating expenses (on a reported basis) increased 2% year over year to $10,209 million due to 2.5% increase in expenses pertaining to salaries, wages and benefits. Consolidated operating costs per available seat miles (CASM: excluding fuel and special items) increased 2.7% to 11.88 cents. Average fuel cost per gallon (on a consolidated basis: including taxes) declined 2.7% to $2.04.

During the reported quarter, this Zacks Rank #3 (Hold) company returned $646 million to shareholders through buybacks ($600 million) and dividends ($46 million). Furthermore, the carrier also declared a dividend of 10 cents per share. The dividend will be paid on May 22 to the shareholders of record on May 8. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q2 Outlook

TRASM is expected to increase between 1% and 3% on a year-over-year basis. Pre-tax margin excluding special items is projected in the range of 7-9% in the second quarter. Additionally, fuel costs are estimated between $2.14 and $2.19 per gallon in the second quarter. The company predicts second-quarter CASM to increase 4.5% year over year. Capacity is expected to grow approximately 0.7% in the second quarter of 2019.

2019 View

CASM (excluding fuel, new labor deals and special items) is expected to increase in the 2-3% range. The company’s capex projection for the current year is revised to $4.4 billion from $4.7 billion. The company now expects to receive five A321neo jets in 2020 instead of 2019. The late delivery resulted in the capex guidance being lowered. Capacity is anticipated to expand approximately 2.5%.

Upcoming Releases

Investors interested in the Zacks Transportation sector are keenly awaiting first-quarter 2019 earnings reports from key players such as C.H. Robinson Worldwide CHRW, Expeditors International of Washington EXPD and Air Lease Corp. AL. While C.H. Robinson will report first-quarter earnings on Apr 30, Expeditors and Air Lease will announce the same on May 7 and 9, respectively.


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