American Airlines Group Inc. AAL, a major Warren Buffett (Trades, Portfolio) airline holding, opened 3.77% lower on Friday on first-quarter earnings results impacted by the grounding of the Boeing Co. BA 737 Max 8.
The Fort Worth, Texas-based airline reported adjusted pretax income of $314 million for the quarter, down $149 million from the prior-year quarter.
Airline lowers earnings guidance on several challenges, including Boeing 737 Max grounding
Chairman and CEO Doug Parker said during the call that although the company reported record revenue of $10.6 billion for the quarter, challenges including the government shutdown, inclement weather near the company’s main hubs and the grounding of the Boeing 737 Max contributed to a decline in pretax earnings compared to the prior-year quarter. The airline extended its grounding of the Max from June 5 to Aug. 19, representing approximately 1,200 total cancellations or about 115 cancellations per day.
Chief Financial Officer Derek Kerr said the Max grounding could result in lower revenue despite the costs staying the same. He added the expected fuel costs for the year are approximately $650 million higher than management forecasted three months ago. Based on these factors, Kerr lowered the full-year earnings per share guidance from a range between $5.50 and $7.50 to a range between $4 and $6.
Stock opens lower on weak guidance
Shares of American opened at $32.15, down 3.77% from Thursday’s close of $33.41.
GuruFocus ranks American’s financial strength 5 out of 10: Although the company’s Piotroski F-score ranks a solid 6 out of 9, the airline’s debt-to-Ebitda ratio of 7.20 underperforms 75% of global competitors. Additionally, the website warns that American has increased its long-term debt by approximately $4 billion over the past three years and that its Altman Z-score of 0.97 suggests possible financial distress.
Buffett’s Berkshire Hathaway Inc. BRK.ABRK.B owns 43.7 million shares of American as of the latest portfolio date. Other gurus with large holdings in American include Bill Nygren (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio).
Disclosure: No positions.
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