Leading U.S. carrier
Southwest Airlines Co.
) reported impressive second-quarter 2014 results. The company
reported earnings of 70 cents per share surpassing the Zacks
Consensus Estimate of 61 cents. The results were also considerably
higher than the prior-year quarter earnings of 38 cents. This marks
the carrier's fifth consecutive quarter of record profits, achieved
on the back of successful execution of its strategic
Southwest Airlines Co - Earnings Surprise |
Quarterly revenues moved up 7.9% year over year to $5,011
million, ahead of the Zacks Consensus Estimate of $4,932 million.
On a year-over-year basis, Passenger and Freight revenues increased
8.5% and 2.3% respectively, while Other revenues fell 2.3%.
Airline traffic, measured in billions of revenue passenger
miles, moved up 2.4% year over year to 28.59 billion in the second
quarter. Capacity or available seat miles decreased 0.4% to 34.10
billion, while load factor (percentage of seats filled with
passengers) leaped 230 basis points year over year to 83.9%.
Passenger revenue per available seat mile (PRASM) increased 9.0%
year over year to 13.94 cents.
Operating Expenses & Operating Income
For the second quarter, adjusted operating income scaled up to
$819 million from $479.0 million a year ago, resulting in an
operating margin of 16.3%. Total adjusted operating expenses
increased 0.7% year over year to $4,192 million due to lower fuel
prices, maintenance costs and aircraft rentals. Fuel price
(economic) accounted for $3.02 per gallon, down from $3.06 in the
year-ago quarter. Consolidated unit cost or cost per available seat
mile (CASM) excluding fuel and special items, increased 3.4% year
over year to 8.14 cents.
At the end of the second quarter, Southwest Airlines had $3,994
million in cash and short-term investments and $1 billion in
undrawn revolving credit facilities. The company had long-term debt
(including current portion) of $2,153 million, representing
debt-to-capitalization ratio of 22.3%.
In the second quarter of 2014, Southwest Airlines generated
operating cash flow of $1,338 million while capital expenditures
amounted to $500.0 million. The company repurchased 7.6 million
shares for approximately $240 million and paid total dividends
worth $42 million. As of Jun 30, 2014, return on invested capital
(before taxes and excluding special items) through the past one
-year period is 17.1%.
Southwest Airlines announced that it has started the third
quarter on a bright note. Based on current revenue and booking
trends, the carrier expects unit revenues to grow 3% in Jul 2014.
Southwest Airlines forecasts its capacity to remain flat in 2014
and expects to expand its network in a disciplined manner.
The company also expects an increase in the third quarter and
2014 unit costs, excluding fuel, profit sharing and special items.
Fuel price (economic) is estimated to be in the range of
$2.95-$3.00 per gallon.
Other Airline Stocks
Delta Air Lines Inc.
) reported second-quarter 2014 results on Jul 24, with adjusted
earnings of $1.04 ahead of the Zacks Consensus Estimate of $1.03.
Hawaiian Holdings Inc.
) earnings of 35 cents per share also steered ahead of our estimate
of 33 cents.
Spirit Airlines Inc.
) will release its second quarter financial results on Jul 29.
Southwest Airlines currently sports a Zacks Rank #1, implying a
Strong Buy rating. Several strategies including fleet
restructuring, introduction of international services, increased
ancillary product offerings, capacity management and slot wins are
expected to boost the company's revenues and reduce expenses, going
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