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Southwest Airlines (LUV) Stock Up as Q4 Earnings Outshine

Low cost carrier, Southwest Airlines Co.LUV reported impressive results for the fourth quarter of 2016. The company beat earnings estimates and delivered better-than-expected revenues. The carrier's earnings per share (on an adjusted basis) of 74 cents beat the Zacks Consensus Estimate of 69 cents.

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Operating revenues of $5,076 million edged past the Zacks Consensus Estimate of $5,025.3 million. Revenues increased 2% on a year-over-year basis. Passenger revenues accounted for the bulk (90.2%) of the top line. The all-round outperformance of the company pleased the investors, as a result of which the stock gained in pre-market trading .

Operating Statistics

Airline traffic, measured revenue passenger miles, which increased 5.5% year over year to 31.4 billion in the quarter under review. Capacity or available seat miles expanded (ASMs) 5% to 37.15 billion. Load factor (percentage of seats filled by passengers) came in at 84.4% compared with 85.1% in the year-ago quarter, as capacity expansion was outweighed by traffic growth. Passenger revenue per available seat mile (PRASM: a key measure of unit revenue) fell 3.3% year over year to 12.44 cents. In the reported quarter, revenue per available seat mile (RASM) was 13.66 cents, down 2.9% year over year.

Operating Expenses & Income

In the fourth quarter, operating income came in at $846 million as against $1 billion in the prior-year quarter. Excluding special items, operating income was $768 million, down 22.6%. Total adjusted operating expenses increased 8.7% year over year. Fuel price per gallon (inclusive of fuel tax: economic) climbed 2% year over year to $2.07. Consolidated unit cost or cost per available seat mile (CASM) - excluding fuel, oil and special items - increased 3.6% year over year to 8.81 cents.

Liquidity

At the end of 2016, Southwest Airlines had $3.4 billion in cash and cash equivalents of $1.68 billion compared with $1.58 billion at the end of 2015. As of Dec 31, 2016, the company had long-term debt (less current maturities) of $2.82 billion as against $2.54 billion at the end of 2015. While the carrier generated free cash flow of $2.3 billion in 2016, it returned $1.97 billion to shareholders through $1.75 billion buyback and $222 million dividend payments.

Southwest Airlines Company Price, Consensus and EPS Surprise

Southwest Airlines Company Price, Consensus and EPS Surprise | Southwest Airlines Company Quote

Guidance

The company holds a Zacks Rank #2 (Buy). It expects RASM to be flat to down at 1% in the first quarter of 2017 on a year-over-year basis. Unit costs - excluding fuel and oil expense­s, special items and profit sharing expenses - are expected to increase in the band of 6% to 7% in the first quarter of 2017, mainly due to the recent labor deals inked by the company. The metric is expected to increase around 3% for full-year 2017. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Other Important Releases Coming Up

Investors in the airline space keenly await the fourth-quarter earnings reports of American Airlines Group AAL , Spirit Airlines SAVE and Alaska Air Group ALK , slated for release on Jan 27, Feb 7 and Feb 8, respectively.

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Southwest Airlines Company (LUV): Free Stock Analysis Report

Alaska Air Group, Inc. (ALK): Free Stock Analysis Report

Spirit Airlines, Inc. (SAVE): Free Stock Analysis Report

American Airlines Group, Inc. (AAL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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