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Why Is American Airlines (AAL) Down 12.6% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for American Airlines (AAL). Shares have lost about 12.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Airlines due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

American Airlines Incurs Loss in Q1

The airline incurred a loss (excluding $2.61 from non-recurring items) of $2.65 per share, comparing unfavorably with the Zacks Consensus Estimate of a loss of $2.16. The company reported earnings per share of 52 cents in the year ago quarter. Results in first-quarter 2020 were hurt by the coronavirus-led drop in air-travel demand.

Operating revenues of $8,515 million declined 19.6% year over year and also fell short of the Zacks Consensus Estimate of $9,146.7 million. Passenger revenues, which accounted for bulk of the top line (90.2%), decreased 20.5%. Cargo revenues also plunged 32.7% to $147million, mainly due to 30.2% lower cargo ton miles. Other revenues slid 2.9%.

Total revenue per available seat miles (TRASM: a key measure of unit revenues) decreased 13.6% to 13.71 cents in the reported quarter. Passenger revenue per available seat miles (PRASM) fell 14.6% to 12.37 cents in the first quarter. Moreover, consolidated yield dipped 3.5%.

While consolidated traffic (measured by revenue passenger miles) was down 17.6%, capacity (measured by average seat miles) contracted 6.9%. Consolidated load factor (percentage of seats filled by passengers) decreased 950 basis points to 72.7% as traffic decline was more than capacity contraction.

Total operating costs (on a reported basis) were up 8.4% year over year to $11,064 million with expenses pertaining to salaries, wages and benefits rising 1.6%. Consolidated operating costs per available seat miles (CASM: excluding fuel and special items) increased 9.2% to 12.97 cents. CASM (including fuel and special items) increased 16.3%. Average fuel cost per gallon (on a consolidated basis: including taxes) declined 10.1% to $1.83.

Other Details

Due to the coronavirus pandemic, American Airlines expects the cash-burn rate for the June quarter to be roughly $70 million per day. Driven by its cost-reduction initiatives, cash-burn rate (on a daily basis) is expected to decline over time to roughly $50 million per day for the month. Also, the company expects to have approximately $11 billion in terms of liquidity for the second quarter.

Moreover, to mitigate this extremely bleak-demand scenario, the carrier reduced system capacity by approximately 80% in both April and May and 70% for June.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.2% due to these changes.

VGM Scores

At this time, American Airlines has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Airlines has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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