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Why Is Southwest (LUV) Up 7.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Southwest Airlines (LUV - Free Report) . Shares have added about 7.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Southwest due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Second-Quarter Earnings
Southwest Airlines' earnings per share (excluding a penny from non-recurring items) of $1.26, beat the Zacks Consensus Estimate of $1.25. The bottom line also increased on a year-over-year basis.
Operating revenues of $5,742 million lagged the Zacks Consensus Estimate of $5,771 million. However, the top line improved year over year. Passenger revenues accounting for bulk (93.3%) of the top line, slipped marginally due to an approximate $100-million impact from the accident in April.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 2.2% year over year to 35.14 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 3.3% to 41.49 billion. Load factor (percentage of seats filled by passengers) came in at 84.7%, down 90 basis points on a year-over-year basis as capacity expansion exceeded traffic growth.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) slid 3.6% to 12.91 cents. In the reported quarter, revenue per available seat mile (RASM) was also down 3% year over year to 13.84 cents.
Operating Expenses & Income
In the second quarter, operating income (as reported) totaled $972 million compared with $1.22 billion in the prior-year period. Excluding special items, the operating income was $967 million, down 17.8%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) increased 3.7% year over year.
Fuel price per gallon (inclusive of fuel tax: economic) escalated 11.1% year over year to $2.21. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items dipped 0.8% year over year to 8.6 cents.
Liquidity
The company had cash and cash equivalents of $2,114 million at the end of the second quarter of 2018 compared with $1,495 million at the end of 2017. As of Jun 30, 2018, the company had a long-term debt (less current maturities) of $3,155 million compared with $3,320 million at 2017-end.
While the carrier generated a cash flow of $1.1 billion at the end of the second quarter, it returned $593 million to its shareholders through dividends and share repurchases.
Outlook
For the third quarter of 2018, the carrier expects revenue per available seat mile (RASM) growth in the range of down 1% to up 1%. Though the guidance is an improvement over the second quarter, it includes adversities from the Flight 1380 accident. However, fourth-quarter RASM is not likely to be affected by the headwinds.
Third-quarter unit costs excluding fuel and oil expense plus profit-sharing expense are estimated to increase 2-3%. While economic fuel costs are projected at $2.25 per gallon. In the year-ago quarter, the metric was recorded at $2.07 per gallon. For 2018, the metric is anticipated to rise 0-1%. Previously, the metric was forecast to remain flat year over year.
The company continues to expect a year-over-year capacity increase between 4.5% and 5% while the same is projected to grow 6.5-7% in the fourth quarter. Meanwhile, it still estimates full-year capacity to expand in the low 4% range. Additionally, the carrier anticipates effective tax rate to be approximately 23.5% in the third quarter as well as the full year. Capital expenditures are predicted in the $2-$2.1 billion range for 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.22% due to these changes.
VGM Scores
Currently, Southwest has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Southwest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Southwest (LUV) Up 7.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Southwest Airlines (LUV - Free Report) . Shares have added about 7.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Southwest due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Second-Quarter Earnings
Southwest Airlines' earnings per share (excluding a penny from non-recurring items) of $1.26, beat the Zacks Consensus Estimate of $1.25. The bottom line also increased on a year-over-year basis.
Operating revenues of $5,742 million lagged the Zacks Consensus Estimate of $5,771 million. However, the top line improved year over year. Passenger revenues accounting for bulk (93.3%) of the top line, slipped marginally due to an approximate $100-million impact from the accident in April.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 2.2% year over year to 35.14 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 3.3% to 41.49 billion. Load factor (percentage of seats filled by passengers) came in at 84.7%, down 90 basis points on a year-over-year basis as capacity expansion exceeded traffic growth.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) slid 3.6% to 12.91 cents. In the reported quarter, revenue per available seat mile (RASM) was also down 3% year over year to 13.84 cents.
Operating Expenses & Income
In the second quarter, operating income (as reported) totaled $972 million compared with $1.22 billion in the prior-year period. Excluding special items, the operating income was $967 million, down 17.8%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) increased 3.7% year over year.
Fuel price per gallon (inclusive of fuel tax: economic) escalated 11.1% year over year to $2.21. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items dipped 0.8% year over year to 8.6 cents.
Liquidity
The company had cash and cash equivalents of $2,114 million at the end of the second quarter of 2018 compared with $1,495 million at the end of 2017. As of Jun 30, 2018, the company had a long-term debt (less current maturities) of $3,155 million compared with $3,320 million at 2017-end.
While the carrier generated a cash flow of $1.1 billion at the end of the second quarter, it returned $593 million to its shareholders through dividends and share repurchases.
Outlook
For the third quarter of 2018, the carrier expects revenue per available seat mile (RASM) growth in the range of down 1% to up 1%. Though the guidance is an improvement over the second quarter, it includes adversities from the Flight 1380 accident. However, fourth-quarter RASM is not likely to be affected by the headwinds.
Third-quarter unit costs excluding fuel and oil expense plus profit-sharing expense are estimated to increase 2-3%. While economic fuel costs are projected at $2.25 per gallon. In the year-ago quarter, the metric was recorded at $2.07 per gallon. For 2018, the metric is anticipated to rise 0-1%. Previously, the metric was forecast to remain flat year over year.
The company continues to expect a year-over-year capacity increase between 4.5% and 5% while the same is projected to grow 6.5-7% in the fourth quarter. Meanwhile, it still estimates full-year capacity to expand in the low 4% range. Additionally, the carrier anticipates effective tax rate to be approximately 23.5% in the third quarter as well as the full year. Capital expenditures are predicted in the $2-$2.1 billion range for 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.22% due to these changes.
VGM Scores
Currently, Southwest has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Southwest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.