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American Airlines Stock Falls Due to Fuel Price Worries

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American Airlines’ 1Q18 adjusted earnings

In 1Q18, American Airlines’ (AAL) adjusted EPS (earnings per share) fell 8.5% YoY (year-over-year) to $0.75 from $0.85. The adjusted EPS, which excluded fleet restructuring and merger integration expenses, beat analysts’ expectation of $0.72. On a GAAP (generally accepted accounting principles) basis, AAL reported diluted EPS of $0.39.

American Airlines’ earnings were impacted by operating expenses due to higher fuel costs and employee salaries. AAL’s fuel expenses rose 25.8% YoY from $1.4 billion to $1.8 billion in 1Q18, and its fuel cost per gallon increased to $2.09 from $1.69. AAL’s salaries and wage expenses rose 5% YoY, and AAL reported a total cost per available seat mile of $0.12.

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However, on the positive side, its EPS were boosted by share repurchases. In 1Q18, AAL bought back 8.4 million shares for $450 million. At the end of 1Q18, AAL had 474.6 million outstanding common shares, compared with 507.8 million in 1Q17. AAL also authorized a $2 billion new share repurchase program to run until December 31, 2020, indicating AAL will continue its aggressive share repurchases.

Guidance and stock price reaction

Although AAL beat analysts’ earnings estimate, its fiscal 2018 earnings guidance disappointed investors. As AAL expects higher fuel expenses to impact earnings, it has lowered its fiscal 2018 adjusted EPS to $5–$6 from $5.60–$6.50.

The stock reacted negatively to the guidance, falling 6.4% to close at $42.37 on April 26. That day, peers Delta Air Lines (DAL) and Southwest Airlines (LUV) fell 2.8% and 1.0%, respectively while JetBlue Airways (JBLU) was flat. Investors can indirectly hold AAL through the iShares Transportation Average ETF (IYT), which had invested 2.7% of its portfolio in American Airlines as of April 26.

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