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Southwest Airlines Co. (LUV - Free Report) reported second-quarter 2018 earnings per share (excluding a penny from non-recurring items) of 1.26, beating the Zacks Consensus Estimate of $1.25. The bottom line also increased on a year-over-year basis.
The earnings beat despite several headwinds in the quarter, pleased investors. Consequently, shares of the company were up in early trading.
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.
Southwest Airlines Co. Price, Consensus and EPS Surprise
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 8.60 cents.
Liquidity
This Zacks Rank #3 (Hold) 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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, Southwest Airlines 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.
Upcoming Releases
Investors interested in the broader Transportation sector are keenly awaiting second-quarter earnings reports from key players, namely C.H. Robinson Worldwide, Inc. (CHRW - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and Genesee & Wyoming, Inc. . While Genesee & Wyoming will report second-quarter earnings on Jul 27, C.H. Robinson and Expeditors will release the same on Jul 31 and Aug 7, respectively.
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Southwest Airlines (LUV) Q2 Earnings Top, Q3 RASM View Bleak
Southwest Airlines Co. (LUV - Free Report) reported second-quarter 2018 earnings per share (excluding a penny from non-recurring items) of 1.26, beating the Zacks Consensus Estimate of $1.25. The bottom line also increased on a year-over-year basis.
The earnings beat despite several headwinds in the quarter, pleased investors. Consequently, shares of the company were up in early trading.
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.
Southwest Airlines Co. Price, Consensus and EPS Surprise
Southwest Airlines Co. Price, Consensus and EPS Surprise | Southwest Airlines Co. Quote
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 8.60 cents.
Liquidity
This Zacks Rank #3 (Hold) 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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, Southwest Airlines 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.
Upcoming Releases
Investors interested in the broader Transportation sector are keenly awaiting second-quarter earnings reports from key players, namely C.H. Robinson Worldwide, Inc. (CHRW - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and Genesee & Wyoming, Inc. . While Genesee & Wyoming will report second-quarter earnings on Jul 27, C.H. Robinson and Expeditors will release the same on Jul 31 and Aug 7, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>