American Airlines (NASDAQ:AAL) Posts Better-Than-Expected Sales In Q4 But Stock Drops

Global airline American Airlines (NASDAQ:AAL) announced better-than-expected revenue in Q4 CY2024, with sales up 4.6% year on year to $13.66 billion. Its non-GAAP profit of $0.86 per share was 30.1% above analysts’ consensus estimates.

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American Airlines (AAL) Q4 CY2024 Highlights:

“The American Airlines team achieved a number of important objectives in 2024,” said American’s CEO Robert Isom.

Company Overview

One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Travel and Vacation Providers

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying “things” (wasteful) to buying “experiences” (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, American Airlines grew its sales at a sluggish 3.4% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. American Airlines’s annualized revenue growth of 5.2% over the last two years is above its five-year trend, but we were still disappointed by the results.

American Airlines also discloses its number of revenue passenger miles, which reached 60.68 billion in the latest quarter. Over the last two years, American Airlines’s revenue passenger miles averaged 7.7% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, American Airlines reported modest year-on-year revenue growth of 4.6% but beat Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, similar to its two-year rate. This projection doesn’t excite us and indicates its newer products and services will not accelerate its top-line performance yet.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

American Airlines has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.1%, lousy for a consumer discretionary business.

Key Takeaways from American Airlines’s Q4 Results

We liked how American Airlines beat analysts’ revenue passenger miles (a key volume metric) expectations this quarter, which led to a revenue beat. EPS also outperformed. On the other hand, its full-year EPS guidance missed significantly and its EPS guidance for next quarter fell short of Wall Street’s estimates, and these are weighing on shares. The stock traded down 7.2% to $17.33 immediately following the results.

The latest quarter from American Airlines’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy.
We cover that in our actionable full research report which you can read here, it’s free
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