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Southwest (LUV) to Report Q3 Earnings: What's in the Offing?

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Southwest Airlines Co. (LUV - Free Report) is scheduled to report third-quarter 2020 results on Oct 22, before market open.

The Zacks Consensus Estimate for the company’s third-quarter loss has widened to $2.44 per share from a loss of $1.28 estimated 90 days ago. Let’s take a look at the factors that are expected to have influenced its performance in the quarter.

With air-travel demand continually weak amid coronavirus concerns, the carrier’s passenger revenues (accounting for bulk of the top line) are expected to have been significantly affected. The Zacks Consensus Estimate for third-quarter passenger revenues indicates an approximate 73% plunge from the year-ago reported number. The same for total revenues hints at a 70.2% decline from that reported in the third quarter of 2020.

Commensurate with the low-demand scenario, Southwest’s capacity was substantially below year-ago levels in the third quarter. The airline predicts capacity to fall 30-35% year over year in the third quarter. The consensus mark for available seat miles (or capacity) suggests a 31.4% fall in the third quarter from the year-ago reported figure.

However, with fuel expenses comprising a major chunk of airline expenditures, low fuel prices are anticipated to have aided the bottom line. The company estimates economic fuel costs in the range of $1.2-$1.25 per gallon in the third quarter compared with $2.07 in the year-ago period. The Zacks Consensus Estimate for the same stands at $1.25 per gallon.
 
Southwest’s bottom line is also likely to have benefited from its cost-reduction initiatives. For the third quarter, the carrier estimates operating expenses, excluding fuel and oil expense, special items, and profit-sharing expense to decrease 10-20% year over year.

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. Price and EPS Surprise

Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote

Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for Southwest this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Southwest has an Earnings ESP of +2.15% as the Most Accurate Estimate is pegged at a loss of $2.39, while the Zacks Consensus Estimate is pinned at a loss of $2.44. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Southwest carries a Zacks Rank #4 (Sell).

Highlights of Q2 Earnings

In the last reported quarter, the company delivered a negative earnings surprise of 5.5% with wider than expected loss. Operating revenues beat the Zacks Consensus Estimate but declined 82.9% year over year with passenger revenues tumbling 87.2% due to coronavirus-induced weak travel demand.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide Inc (CHRW - Free Report) , Canadian National Railway Company (CNI - Free Report) and Knight-Swift Transportation Holdings Inc (KNX - Free Report) as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson has an Earnings ESP of +1.35% and a Zacks Rank #2. The company will release third-quarter earnings numbers on Oct 27.

Canadian National has an Earnings ESP of +0.68% and a Zacks Rank #3. The company will announce third-quarter results on Oct 20.

Knight-Swift has an Earnings ESP of +6.79% and a Zacks Rank #2. The company is set to release third-quarter financial numbers on Oct 21.

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