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Southwest (LUV) Q3 Earnings Top Estimates on Higher Revenues
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Southwest Airlines Co. (LUV - Free Report) reported third-quarter 2018 earnings per share of $1.08, beating the Zacks Consensus Estimate of $1.06. Moreover, the bottom line improved 22.7% on a year-over-year basis despite higher fuel prices. Results were aided by stronger revenues.
Operating revenues of $5,575 million outpaced the Zacks Consensus Estimate of $5,557 million. The top line also rose year over year. Passenger revenues accounting for bulk (93.2%) of the top line increased 5.1% year over year.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 2.7% year over year to 34.02 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 3.9% to 40.57 billion. Load factor (percentage of seats filled by passengers) came in at 83.9%, 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) inched up 1.1% to 12.80 cents. Moreover, in the reported quarter, revenue per available seat mile (RASM) increased 1.2% year over year to 13.74 cents.
Southwest Airlines Co. Price, Consensus and EPS Surprise
In the third quarter, operating income (as reported) totaled $798 million compared with $845 million in the year-earlier period. Excluding special items, the operating income was $796 million, down 9.8%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) increased 7% year over year due to higher maintenance and advertising expenses as well as an approximate one-point year-over-year adversity from the weather-related disruptions causing multiple flight cancellations during the quarter under review.
Fuel price per gallon (inclusive of fuel tax: economic) escalated 8.7% year over year to $2.25. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items rose 3% year over year to 8.81 cents.
Liquidity
This Zacks Rank #3 (Hold) company had cash and cash equivalents of $2,104 million at the end of the third quarter compared with $1,495 million at the end of 2017. As of Sep 30, 2018, the company had a long-term debt (less current maturities) of $3,100 million compared with $3,320 million at 2017 end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While the carrier generated a free cash flow of $817 million during the third quarter, it returned $591 million to its shareholders through dividends and share repurchases.
Outlook
The company anticipates RASM to inch up 1-2% year over year in the fourth quarter of 2018. Economic fuel costs are estimated to be between $2.30 and $2.35 per gallon in the quarter compared with $2.16 in the prior-year period. Additionally, fourth-quarter CASM (excluding fuel and oil expense and profit-sharing expense) is expected to expand 0-1% year over year. The metric is anticipated to rise 0-1% for the full year as well.
For 2018, the company envisions an effective tax rate of approximately 23%. While the same for 2019 is forecast to be roughly 23.5%.
Further, fuel costs are estimated in the range of $2.35-$2.40 per gallon in 2019. This clearly signals the uptrend in fuel prices, which is likely to persist next year as well. The bearish fuel cost estimate induced investors’ pessimism surrounding the stock. Consequently, the stock declined around 6% in early trading despite delivering better-than-expected results in the third quarter.
Upcoming Releases
Investors interested in the broader Zacks Transportation sector are keenly awaiting third-quarter earnings reports from key players like SkyWest, Inc. (SKYW - Free Report) , C.H. Robinson Worldwide, Inc. (CHRW - Free Report) and Triton International Limited . While SkyWest and C.H. Robinson will report third-quarter earnings on Oct 30, Triton International will release the same on Nov 2.
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Southwest (LUV) Q3 Earnings Top Estimates on Higher Revenues
Southwest Airlines Co. (LUV - Free Report) reported third-quarter 2018 earnings per share of $1.08, beating the Zacks Consensus Estimate of $1.06. Moreover, the bottom line improved 22.7% on a year-over-year basis despite higher fuel prices. Results were aided by stronger revenues.
Operating revenues of $5,575 million outpaced the Zacks Consensus Estimate of $5,557 million. The top line also rose year over year. Passenger revenues accounting for bulk (93.2%) of the top line increased 5.1% year over year.
Operating Statistics
Airline traffic, measured in revenue passenger miles, nudged up 2.7% year over year to 34.02 billion in the quarter under review. Capacity or available seat miles (ASMs) expanded 3.9% to 40.57 billion. Load factor (percentage of seats filled by passengers) came in at 83.9%, 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) inched up 1.1% to 12.80 cents. Moreover, in the reported quarter, revenue per available seat mile (RASM) increased 1.2% year over year to 13.74 cents.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. Price, Consensus and EPS Surprise | Southwest Airlines Co. Quote
Operating Expenses & Income
In the third quarter, operating income (as reported) totaled $798 million compared with $845 million in the year-earlier period. Excluding special items, the operating income was $796 million, down 9.8%. Total adjusted operating expenses (excluding profit sharing, fuel and oil expense plus special items) increased 7% year over year due to higher maintenance and advertising expenses as well as an approximate one-point year-over-year adversity from the weather-related disruptions causing multiple flight cancellations during the quarter under review.
Fuel price per gallon (inclusive of fuel tax: economic) escalated 8.7% year over year to $2.25. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel, oil and special items rose 3% year over year to 8.81 cents.
Liquidity
This Zacks Rank #3 (Hold) company had cash and cash equivalents of $2,104 million at the end of the third quarter compared with $1,495 million at the end of 2017. As of Sep 30, 2018, the company had a long-term debt (less current maturities) of $3,100 million compared with $3,320 million at 2017 end. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While the carrier generated a free cash flow of $817 million during the third quarter, it returned $591 million to its shareholders through dividends and share repurchases.
Outlook
The company anticipates RASM to inch up 1-2% year over year in the fourth quarter of 2018. Economic fuel costs are estimated to be between $2.30 and $2.35 per gallon in the quarter compared with $2.16 in the prior-year period. Additionally, fourth-quarter CASM (excluding fuel and oil expense and profit-sharing expense) is expected to expand 0-1% year over year. The metric is anticipated to rise 0-1% for the full year as well.
For 2018, the company envisions an effective tax rate of approximately 23%. While the same for 2019 is forecast to be roughly 23.5%.
Further, fuel costs are estimated in the range of $2.35-$2.40 per gallon in 2019. This clearly signals the uptrend in fuel prices, which is likely to persist next year as well. The bearish fuel cost estimate induced investors’ pessimism surrounding the stock. Consequently, the stock declined around 6% in early trading despite delivering better-than-expected results in the third quarter.
Upcoming Releases
Investors interested in the broader Zacks Transportation sector are keenly awaiting third-quarter earnings reports from key players like SkyWest, Inc. (SKYW - Free Report) , C.H. Robinson Worldwide, Inc. (CHRW - Free Report) and Triton International Limited . While SkyWest and C.H. Robinson will report third-quarter earnings on Oct 30, Triton International will release the same on Nov 2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>