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American Airlines (AAL) Q2 Earnings: Will it Disappoint?

American Airlines Group Inc . AAL is scheduled to unveil second-quarter 2018 results on Jul 26, before the market opens.

In the first quarter of 2018, the company delivered a positive earnings surprise of 1.4%. The bottom line also improved significantly year over year despite high costs. Although the top line fell short of the Zacks Consensus Estimate, it increased year over year on strong demand for air travel.

However, the company has been affected by numerous headwinds in the second quarter.

Let's delve into the details.

Factors Likely at Play

Repeating the first-quarter trend, high fuel costs are likely to hurt the company's bottom line in the second quarter too. Average fuel price per gallon is anticipated to lie between $2.24 and $2.29, much higher than $1.62 in the year-ago period as well as $2.10 in the previous quarter. The Zacks Consensus Estimate for the same stands at $2.21 per gallon.

The IT glitch at PSA Airlines (American Airlines' wholly owned regional carrier) is also expected to weigh on the company's quarterly results. This untoward incident led to approximately 3,000 flight cancellations in June and is estimated to affect the company's pre-tax income to the tune of $35 million.

Further, lower-than-expected domestic yields might adversely impact unit revenues and the top line in turn. The company predicts total revenue per available seat mile (TRASM) to increase between 1% and 3% in the second quarter (the metric rose 5.7% in the prior-year period).

However, robust passenger revenues on the back of rising demand for air travel is likely to aid results in the quarter to be reported.

Earnings Whispers

Our proven model does not conclusively show that American Airlines is likely to beat estimates this earnings season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Earnings ESP : American Airlines has an Earnings ESP of -0.13%. This is because the Most Accurate Estimate is pegged at $1.58 per share, lower than the Zacks Consensus Estimate of $1.59. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : American Airlines has a Zacks Rank #3, which increases the predictive power of ESP. However, a company needs to have a positive ESP to be confident of a likely earnings beat. Therefore, this combination leaves surprise prediction inconclusive.

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

American Airlines Group Inc. Price and EPS Surprise

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

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like United Parcel Service, Inc. UPS , Expeditors International of Washington, Inc. EXPD and Norfolk Southern Corporation NSC as these possess the right combination of elements to beat on earnings this reporting cycle.

UPS has an Earnings ESP of +0.62% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

Expeditors has an Earnings ESP of +1.54% and a Zacks Rank of 1. The company will report second-quarter earnings on Aug 7. You can see the complete list of today's Zacks #1 Rank stocks here .

Norfolk Southern has an Earnings ESP of +0.36% and a Zacks Rank #2. The company will announce second-quarter financial numbers on Jul 25.

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American Airlines Group Inc. (AAL): Free Stock Analysis Report

Norfolk Southern Corporation (NSC): Free Stock Analysis Report

Expeditors International of Washington, Inc. (EXPD): Free Stock Analysis Report

United Parcel Service, Inc. (UPS): Free Stock Analysis Report

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


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

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