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American Airlines: 4Q17 Earnings Beat Estimates, Stock Fell

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American Airlines’ 4Q17 earnings

American Airlines (AAL) announced its 4Q17 earnings on January 25, 2018. It reported adjusted EPS (earnings per share) of $0.95, an increase of 3.3% on a year-over-year basis. In 4Q16, AAL reported adjusted EPS of $0.92, beating analysts’ projection of $0.89. On a GAAP (generally accepted accounting principles) basis, AAL reported diluted EPS of $0.54.

American Airlines’ earnings were adversely impacted by its increased operating expenses, driven by higher fuel costs and the increase in employee salaries. Its fuel cost per gallon during the quarter increased to $1.90 compared to $1.56, a 22% rise year-over-year. Excluding fuel expenses, AAL’s cost per available seat mile rose 3.8%.

Its EPS was boosted by share repurchases. In 4Q17, AAL bought back 4.6 million shares and spent $227 million. It’s left with $450 million from its $2 billion share repurchase program. At the end of 4Q17, AAL had 479.4 million outstanding common shares compared to 518.4 million in 4Q16.

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Stock price reaction

Although AAL beat analysts’ earnings estimates, its fiscal 2018 earnings guidance disappointed investors. AAL expects its adjusted EPS to be $5.50–$6.50, but it also expects its tax rate to fall from 38% to 24% due to tax reforms. It also expects to benefit from share repurchases.

AAL stock reacted negatively and fell 3.2%, closing at $53.05 on January 25, 2018. That day, peers Delta Air Lines (DAL), Southwest Airlines (LUV), and JetBlue Airways (JBLU) fell 3.5%, 3.2%, and 6.1%, respectively.

Investors can indirectly hold AAL by investing in the PowerShares Dynamic Leisure and Entertainment ETF (PEJ), which has invested 5.3% of its portfolio in American Airlines as of January 26, 2018.

 

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