American Airlines’ first quarter results may not be so bad

<p>American Airlines (NASDAQ: AAL) reports results for the first quarter on April 30 before the markets open. They are not expected to be something to write home about, especially for AAL shares.

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That said, if I owned American Airlines shares, I would be more concerned about the numbers for the second quarter.

Here’s why.

The business looked good

The first thing to remember about Q1 2020 is that the first two months of the quarter (January and February) are likely to be as usual and reasonably decent. The last quarter of March is likely to be much more erratic.

During the first quarter of 2019, US revenue for the first quarter reported $ 10.6 billion with adjusted net earnings of 52 cents per share. Total revenues during that quarter increased by 1.8% compared to the same period the year before due to a strong showing from passenger travel.

The airline’s passenger revenue per available seat mile (PRASM) during the first quarter of last year increased by 0.6% to 14.49 cents while total revenue per available seat mile (TRASM) increased by 0.5% to 15.87 cents, a company record. Finally, its load factor (defined as the proportion of seats filled by passengers) was 82.2%, 180 points higher than the year before. Both the main line and the regional operations increased.

In January, US strong 2019 results with PRASM reported 2.2% to 14.74 cents, TRASM increased 1.7% to 16.05 cents, and its load factor was 84.6%, 260 points higher.

If you did not know about the new coronavirus and how it wreaked havoc on the entire aviation industry, you would probably be pretty pumped for their income release, but if you have not lived underground it is not so.

How bad will the March issue be for AAL stocks?

Although traffic in January and February was relatively normal, demand declined in March. Therefore, it is unlikely that Americans will see year over year from Q1 2019 to Q1 2020.

Analysts expect the airline’s load factor to be 80% during the first quarter. That is 220 basis points less than the same quarter a year earlier and 470 basis points during the fourth quarter of 2019. Unfortunately, this does not take into account any weakness on the international front. As a result, the load factor may fall into the 70s.

In addition, American is expected to see a decline of 11.1% in the traffic bill from the fourth quarter with PRASM falling by 8.1% compared to the fourth quarter to 13.53 cents and by 6.6% compared to Q1 2019.

In terms of revenue and revenue, American is expected to deliver $ 9.15 billion and a loss of $ 2.16 per share during the first quarter. It reduces earnings and sales by 288% and 19% respectively during the fourth quarter and 515% and 14% respectively during the first quarter last year.

The second quarter may be what really hurts the AAL share

According to Yahoo Finance, the current second-quarter profit estimate ending June 30 is a loss of $ 7.99, an increase of more than twice the loss estimate of $ 3.12 from 30 days ago and $ 2.04 60 days ago. . On the revenue front, analysts expect sales of $ 2.08 billion, 83% lower than in the second quarter of 2019.

The question investors need to ask themselves is: how much of this is already baked into America’s stock price?

As I write this, it is 61% down for the year. In a normal situation, one can imagine that a bottom is given that it has mostly traded sideways from mid-February to mid-March that most stocks went through, but these are not normal times.

The last time I wrote about American was in mid-March. At the time, I argued that AAL’s share price was intended for single figures. It went there in early April but it has since recovered.

“The smart game at this point is to wait for it to fall into single digits. The Trump administration can provide some financial support to get airlines through the darkest days. It can provide a lift, I wrote on March 18.

“An even smarter game if you are considering AAL shares is to buy Berkshire shares instead. You get a diversified portfolio of public and private investments, including American Airlines. ”

Honestly, I do not see too much happening with its stock after profit, good or bad. The actual test will be traded between May and early July when it reports its second quarter results.

That’s when the rubber gets in the way. Until then, I’m not sure there are any catalysts to drive this stock higher. I guess we’ll find out soon.

Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.