American Airlines (AAL) Down 12.7% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for American Airlines (AAL). Shares have lost about 12.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Earnings Beat at American Airlines in Q1
American Airlines' 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%.
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, the 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.
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%.
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).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.03% due to these changes.
VGM Scores
At this time, American Airlines has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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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