American Airlines (AAL) Shares Down Despite Beating First-Quarter Results

American Airlines GroupAAL’s first-quarter 2019 adjusted earnings of 52 cents per share topped the Zacks Consensus Estimate by one cent. However, net income declined year-over-year due to high expenses.

Revenues totaled $10,584 million, missing the Zacks Consensus Estimate of $10,656.24 million. However, the top line improved 1.8% year-over-year. Passenger revenue, which comprised the majority of the top line, rose 1.9%.

More than the lack of revenue, the company’s decision to cut its 2019 earnings per share guidance disappointed investors. As a result, the stock fell in premarket trading.

American Airlines now expects 2019 earnings per share to be between $4 and $6 (previous forecast: $5.50-$7.50). The midpoint of the forecast range ($5) is below the Zacks Consensus Estimate of $5.74 per share. Updates on Boeing’s 737 MAX aircraft and fuel costs led the company to lower its earnings forecasts.

American Airlines, which currently has 24 Boeing 737 MAX planes and has 76 more on order, has grounded the Boeing 737 MAX planes in its fleet until Aug. 19. That has resulted in the cancellation of about 115 flights per day. As a result, the company’s 2019 pretax profits are expected to be reduced by about $350 million.

In addition, due to the recent rise in oil prices, fuel costs in 2019 are expected to be $650 million more than the company had forecast in January of this year. Fuel costs per gallon for the current year are now forecast to be between $2.13 and $2.18 (previous forecast: $1.99-$2.04).

Other details about Q1

Total Revenue Per Available Seat Miles (TRASM: a key unit revenue measure) 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 profitability decreased 1.6%.

While traffic (measured in revenue seat miles) increased by 3.5%, capacity (measured in average number of seats) increased by 1.3%. Consolidated load factor (the percentage of seats occupied by passengers) increased by 180 basis points to 82.2% as traffic growth outpaced capacity growth.

Total operating expenses (as reported) increased 2% year over year to $10.209 million due to a 2.5% increase in compensation, wages and benefits. Consolidated operating costs per available mile (CASM: excludes fuel and special items) increased 2.7% to 11.88 cents. Average fuel cost per gallon (consolidated: includes taxes) decreased 2.7% to $2.04.

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

Outlook for Q2

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

View 2019

CASM (excluding fuel, new employee contracts and special items) is expected to increase in the range of 2-3%. The company’s capital expenditure forecast for the current year has been revised from $4.7 billion to $4.4 billion. The company now expects to receive five A321neo aircraft in 2020 instead of 2019. The delayed delivery has resulted in a lower capital expenditure forecast. Production capacity is expected to increase by around 2.5%.

Upcoming releases

Investors interested in the Zacks Transportation sector are eagerly awaiting the first-quarter 2019 earnings reports from key players such as CH Robinson Worldwide CHRW, Expeditors International of Washington EXPD, and Air Lease Corp. AL. While CH Robinson is set to release its first-quarter earnings report on April 30, Expeditors and Air Lease will be announcing the same on May 7 and May 9, respectively.

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