American Airlines Group (AAL -7.66%) beat quarterly expectations, but its outlook for what’s to come wasn’t as rosy as some had hoped for. Investors are heading for the exits after the results, sending American shares down as much as 10% for the day and down 8% as of 12:30 p.m. ET.
Steady progress
American and other airlines have used strong post-pandemic demand trends to rebuild balance sheets and boost profitability. The process continued in the fourth quarter, as American’s $0.86 per share in earnings on sales of $13.7 billion topped Wall Street’s consensus estimates of $0.66 per share in earnings on $13.4 billion of sales.
The airline said it generated $2.2 billion in free cash flow in 2024, allowing it to hit its goal of $15 billion in total debt reduction a year ahead of schedule. American remains focused on debt reduction and ended the year with more than $10 billion in total available liquidity.
“The American Airlines team achieved a number of important objectives in 2024,” CEO Robert Isom said in a statement. “We continue to run a reliable operation, and we are reengineering the business to build an even more efficient airline.”
But the momentum is unlikely to continue into the current quarter. American forecast a first-quarter loss of between $0.20 and $0.40 per share, worse than the expected $0.06 per-share loss. For the year, American expects to earn between $1.70 and $2.70 per share, suggesting some downside to the $2.42 per-share consensus.
Is American Airlines a buy?
American expects that revenue will remain strong but earnings will be weighed down by higher non-fuel costs. The stock has performed quite well of late — up 60% in the last six months, even after Thursday’s decline — and analysts appear to have gotten ahead of operations.
For a long-term-focused investor, there’s still a lot to like. American expects to generate more than $2 billion in free cash flow again in 2025 and believes it can get its total debt below $35 billion by the end of 2027, a year ahead of plan. The airline also intends to take delivery on 40 to 50 new aircraft in 2025. Newer planes help to decrease unit costs, and American expects the deliveries to result in about $200 million in cost savings.
American Airlines remains on the right path, but the journey will take time. The quarterly results and guidance are no reason for concern.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
