What to Expect From American Airlines (AAL) in Q1 Earnings?

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American Airlines Group Inc. AAL is scheduled to unveil first-quarter 2018 results on Apr 26, before the opening bell.

In the fourth quarter of 2017, the company delivered a positive earnings surprise of 3.3% backed by higher revenues. Furthermore, this airline behemoth has an impressive earnings history, having outshined the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 3.8%.

Let's see how things are shaping up for this Fort Worth, TX-based company prior to the announcement.

Price Performance in Q1

In the January-March period, the stock has performed disappointingly mainly due to rising fuel costs. The stock has shed 0.2% of its value against the industry 's gain of 1%.

Direction of Estimate Revisions

Let's take a look at the estimate revisions to get a clear picture of analysts' opinion on the stock before the earnings release.

American Airlines has witnessed the Zacks Consensus Estimate for first-quarter earnings being revised 29.8% upward to 74 cents over the last 30 days.  Moreover, the estimate reflects a year-over-year improvement of 21.3%. However, when considering a shorter time period of seven days, the consensus mark for first-quarter earnings remains stable.

Furthermore, analysts polled by Zacks expect first-quarter revenues to come in at $10.41 billion, reflecting an increase of roughly 8.2% on a year-over-year basis.

Given this backdrop, let's delve deeper to unearth the factors that are likely to influence the company's first-quarter results:

As noted above, oil prices have been on an uptrend lately and were up approximately 8% in the January-March period. We note that high oil prices do not bode well for companies in the airline space as fuel costs account for a significant chunk of their expenditures.

Given the inversely proportional relation between oil prices and airline stocks, this increase in crude prices is expected to hurt American Airlines' bottom-line in the soon-to-be-reported quarter. Average fuel price per gallon (consolidated jet fuel, including taxes) is estimated in the range of $2.08-$2.13 for the quarter. The Zacks Consensus Estimate of $2.10 lies within the guided range. Fuel price was $1.91 per gallon at American Airlines in the final quarter of 2017.

Fuel prices apart, expenses on the labor front are also expected to limit first-quarter bottom-line growth. Non-fuel unit costs are anticipated to increase 3% year over year in the first quarter of 2018.

However, American Airlines is expected perform well on the unit revenue front in the soon-to-be-reported quarter. The carrier expects total revenue per available seat mile (TRASM: a key measure of unit revenues) to increase between 3% and 4% year over year in the first quarter backed by strong demands for air travel and improving yields. The Zacks Consensus Estimate for first-quarter TRASM (consolidated) is pegged at 15.76 cents, higher than 15.74 cents, unveiled by the company, in the fourth quarter of 2017. Moreover, pre-tax margin (excluding special items) is anticipated between 4% and 5%.

American Airlines Group Inc. Price and EPS Surprise

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

What Does Our Model Say?

Our proven model does not show conclusively that American Airlines will beat earnings in first-quarter 2018. This is because a stock needs to have both - a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. However, that is not the case as highlighted below.

Zacks ESP : American Airlines has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 74 cents per share. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

Zacks Rank : American Airlines carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat. You can see  the complete list of today's Zacks #1 Rank stocks here .

Conversely, we caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader  Zacks Transportation sector  may check out the following companies with the right combination of elements to beat estimates in the next releases:

Spirit Airlines, Inc. SAVE has an Earnings ESP of +2.46% and a Zacks Rank of 3. The company will release first-quarter 2018 results on Apr 26.

Copa Holdings, S.A. CPA has an Earnings ESP of +0.75% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 9.

C.H. Robinson Worldwide, Inc. CHRW has an Earnings ESP of +0.17% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 1.

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: CPA , SAVE , AAL , CHRW

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