American Airlines Group Inc.’s AAL first-quarter 2018 earnings (excluding 36 cents from non-recurring items) of 75 cents per share surpassed the Zacks Consensus Estimate by a penny. Quarterly earnings increased approximately 23% on a year-over-year basis despite higher costs.

Revenues of $10,401 million fell short of the Zacks Consensus Estimate of $10,411.9 million.  The top line, however, improved on a year-over-year basis. Strong demand for air travel led to the year over year improvement in the top line.

Total revenue per available seat miles (TRASM: a key measure of unit revenue) improved 3.5% to 15.80 cents in the reported quarter. Consolidated yield improved 1.5%. Passenger revenue per available seat miles (PRASM) improved 3%.

While traffic (measured by revenue passenger miles) was up 3.8%, capacity (measured by average seat miles) was up 2.3%. Consolidated load factor (percentage of seats filled by passengers) increased to 80.4% from 79.2% a year-ago as traffic growth outpaced capacity expansion in the first quarter of 2018.

Total operating expenses climbed 9.8% year over year to approximately $10 billion primarily due to the rise in fuel costs. Expenses pertaining to salaries and benefits were up 5.5%. Consolidated operating costs per available seat miles (CASM: excluding fuel and special items) increased 2.8%.

During the quarter under review, this Zacks Rank #3 (Hold) company returned $498 million to shareholders through dividends and buybacks. Furthermore, the carrier also declared a dividend of 10 cents per share. The dividend will be paid on May 22, to the shareholders on May 8.  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s board also cleared a new buyback program worth $2 billion. It will be completed by Dec 31, 2020. We are impressed by the company’s efforts to reward shareholders through stock repurchases and dividend payments. Meanwhile, the carrier remains focused on introducing new aircraft and retiring old ones from its fleet.

American Airlines Group Inc. Price, Consensus and EPS Surprise

 

American Airlines Group Inc. Price, Consensus and EPS Surprise | American Airlines Group Inc. Quote

Outlook

TRASM is expected to increase in the band of 1.5% to 3.5% in the second quarter of 2018. Pre-tax margin excluding special items is projected in the range of 7.5% to 9.5% in the second quarter. Adjusted earnings per share in 2018 are now expected between $5.00 and $6.00 (previous guidance had hinted at earnings between $5.50 and $6.50). The Zacks Consensus Estimate for 2018 earnings is currently pegged at $5.74 per share. Higher fuel costs led to the view being trimmed. Consolidated jet fuel per gallon is projected in the band of $2.18 to $2.23 for the second quarter.

Consolidated CASM (excluding special items and fuel) is expected to increase 3.5% in the second quarter of 2018. The metric is also anticipated to increase approximately 2% in 2018. The metric is still expected to increase in the band of 1% to 2% in each of 2019 and 2020. Capacity (system) in 2018 is still projected to increase 2.5% year over year.

The revenue miss and the dull 2018 earnings guidance disappointed investors. Consequently, shares of the company were down in early trading.

Upcoming Releases

Investors interested in the Zacks Transportation industry are keenly awaiting first-quarter earnings reports from key players like Copa Holdings, S.A. CPA , C.H. Robinson Worldwide, Inc. CHRW and Expeditors International of Washington, Inc. EXPD, in the coming days. While C.H. Robinson Worldwide is scheduled to report on May 1, Expeditors and Copa Holdings are scheduled to do the same on May 8 and May 9, respectively.

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Copa Holdings, S.A. (CPA): Free Stock Analysis Report
 
American Airlines Group Inc. (AAL): Free Stock Analysis Report
 
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Expeditors International of Washington, Inc. (EXPD): Free Stock Analysis Report
 
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