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Category: Stock Market and SouthWest Airlines
Date: 14 June 2020 Stock Price: $35.87 We take a look at the 1st quarter earnings report of their 2020 fiscal year of SouthWest Airlines, the airline operator that at its peaks sees more than 4000 weekday departures to 101 destinations across the United States and 10 other countries. The group has been hit hard by the Covid-19 pandemic and restrictions on travel with revenues declining almost 18% in the quarter compared to a year ago.
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About Southwest Airlines
In its 49th year of service, Dallas-based Southwest Airlines Co. (NYSE: LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 60,000 Employees to a Customer base topping 130 million passengers annually. Southwest became the nation’s largest domestic air carrier in 2003 and maintains that ranking based on the U.S. Department of Transportation’s most recent reporting of domestic originating passengers boarded. In peak travel seasons, Southwest operates more than 4,000 weekday departures among a network of 101 destinations in the United States and 10 additional countries.
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Southwest coined Transfarency® to describe its purposed philosophy of treating Customers honestly and fairly, and low fares actually staying low. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some carriers offer free checked bags on select routes or in qualified circumstances), and there are no change fees, though fare differences might apply.
Southwest is committed to returning value to its Shareholders. Since 2010, Southwest has returned more than $11.7 billion to Shareholders through share repurchases and dividends, through September 30, 2019. In the first nine months of 2019, Southwest returned $1.8 billion to Shareholders through the repurchase of $1.45 billion in common stock and the payment of $372 million in dividends.
Overview of Southwest Airlines 1st quarter 2020 earnings report
Data below refers to quarterly data unless specified otherwise:
- Revenues: $4.234 billion (down from $5.149 billion for the same period of the previous year)
- Revenues decreased by-17.8% over the last 12 months
- Operating expenses: $4.344 billion (down from $4.664 billion for the same period of the previous year)
- Operating expenses decreased by -6.5% over the last 12 months
- Net loss: -$94 million (down from $387 million from for the same period of the previous year)
- Diluted loss per share: -$0.18 (down from $0.70 for the same period of the previous year)
- Diluted weighted-average shares outstanding: 515 million (down from 552 million for the same period of the previous year)
- Cash and cash equivalents: $3.940 billion
- Cash and cash equivalents per share: $7.65
- Cash and cash equivalents makes up 21.3% of Southwest Airlines market capital
- Cash and cash equivalents makes up 14.7% of Southwest Airlines total assets
- Flight equipment: $21.580 billion
- Stockholders equity in Southwest Airlines: $9.075 billion
- Stockholders equity per Southwest Airlines share: $17.62
- Southwest Airlines is trading at 2.03 times its stockholders equity per share which is just within the expected range of between 2 and 4 that most firms tend to trade at
- The average price to book value of firms in the S&P 500 is 3.7
- Cash used in operations: -$377 million
- Cash generated from operations per share: -$0.73
- So Southwest Airlines burned through $377 million in the last quarter. This could continue for a while still as air travel will be slow to pick up in coming months due to the coronavirus pandemic.
Southwest Airlines' management commentary on their 1st quarter 2020 results
DALLAS, April 28, 2020 /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) (the "Company") today reported its first quarter 2020 results:
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "This is an unprecedented time for our Nation and the airline industry. In late February, we began experiencing a precipitous drop in passenger demand and bookings due to the novel coronavirus COVID-19 pandemic, resulting in a first quarter 2020 net loss. The U.S. economy has been at a standstill, and the current outlook for second quarter 2020 indicates no material improvement in air travel trends. Trip cancellations remain at unprecedented levels, though they have receded from their peak in March. As such, we have significantly reduced our published flight schedules through July 2020. In addition, we have taken swift action to significantly reduce cash burn. We have reduced named executive officer salaries and Board of Director cash retainer fees by 20 percent; suspended all hiring and non-contract salary increases; implemented voluntary time-off programs; canceled or deferred hundreds of capital spending projects; modified vendor and supplier payment terms; and cut all non-essential spending. These combined efforts, along with capacity reductions, are expected to result in more than $2 billion in reduced annual 2020 operating costs as well as more than $1 billion in reduced annual 2020 capital spending, compared with original plans. We will continue evaluating the need for further flight schedule adjustments, while planning to maintain service to all points in our domestic network through at least September 30, 2020.
"We applaud the work of our federal leaders, President Trump, Secretaries Mnuchin and Chao, and the entire United States Congress for recognizing the unprecedented health and economic crisis that our Nation is currently facing due to the pandemic, as well as the importance of airlines to the U.S. economy. The PSP under the CARES Act allows us to protect the jobs of the more than 60,000 Southwest Employees through September 30, 2020.
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "This is an unprecedented time for our Nation and the airline industry. In late February, we began experiencing a precipitous drop in passenger demand and bookings due to the novel coronavirus COVID-19 pandemic, resulting in a first quarter 2020 net loss. The U.S. economy has been at a standstill, and the current outlook for second quarter 2020 indicates no material improvement in air travel trends. Trip cancellations remain at unprecedented levels, though they have receded from their peak in March. As such, we have significantly reduced our published flight schedules through July 2020. In addition, we have taken swift action to significantly reduce cash burn. We have reduced named executive officer salaries and Board of Director cash retainer fees by 20 percent; suspended all hiring and non-contract salary increases; implemented voluntary time-off programs; canceled or deferred hundreds of capital spending projects; modified vendor and supplier payment terms; and cut all non-essential spending. These combined efforts, along with capacity reductions, are expected to result in more than $2 billion in reduced annual 2020 operating costs as well as more than $1 billion in reduced annual 2020 capital spending, compared with original plans. We will continue evaluating the need for further flight schedule adjustments, while planning to maintain service to all points in our domestic network through at least September 30, 2020.
"We applaud the work of our federal leaders, President Trump, Secretaries Mnuchin and Chao, and the entire United States Congress for recognizing the unprecedented health and economic crisis that our Nation is currently facing due to the pandemic, as well as the importance of airlines to the U.S. economy. The PSP under the CARES Act allows us to protect the jobs of the more than 60,000 Southwest Employees through September 30, 2020.
"I am extremely grateful to our People for their continued dedication to serve our Customers through an ever-changing environment. Since March 2019, our Employees have been doing a heroic job managing the challenges related to the grounding of the Boeing 737 MAX (MAX) aircraft. Based on The Boeing Company's recent communication on the MAX return to service date, we currently expect the MAX to be removed through the end of our published flight schedule date of October 30, 2020. In light of the current environment, we are in the process of revising our aircraft order book with Boeing and will continue partnering with Boeing on a sensible delivery schedule.
"Our Employees are taking great care of each other and our Customers. We have implemented enhanced aircraft cleaning procedures, and we are continuing to explore options to further protect the health and safety of our Employees and Customers. Our People have risen to the occasion, once again, approaching current challenges with Teamwork, bravery, and resolve. And, our magnificent, dedicated, and fearless health care professionals also deserve our deepest appreciation; as do essential personnel from first responders to truck drivers, from grocery store workers to frontline communication workers. We are proud of them all, and we remain committed to serving their communities and providing much-needed air travel to transport personnel and supplies.
"We entered this crisis prepared with the U.S. airline industry's strongest balance sheet and most successful business model. While the impact of the pandemic is unprecedented, we believe demand for air travel will rebound. And, we intend to emerge with ample liquidity and an unwavering focus on our enduring Purpose—to connect People to what is important in their lives through friendly, reliable, and low-cost air travel."
Revenue Results and Outlook
The Company's first quarter 2020 total operating revenues decreased 17.8 percent, year-over-year, to $4.2 billion, due primarily to the sharp decline in passenger demand and bookings beginning in late February, combined with an unprecedented level of close-in trip cancellations in March 2020, due to the pandemic. First quarter 2020 operating revenue per available seat mile (RASM, or unit revenues) was 11.98 cents, and decreased 11.8 percent, driven primarily by a load factor decrease of 13.3 points, offset slightly by a passenger revenue yield increase of 4.0 percent, all year-over-year. January and February 2020 unit revenues were in line with original expectations for first quarter year-over-year RASM growth in the range of 3.5 to 5.5 percent. With the sudden and severe drop-off in passenger demand caused by COVID-19 concerns, the load factor for March 2020 was only 46.6 percent, compared with 85.7 percent in March 2019, with a load factor of approximately 20 percent for the second half of March 2020.
The Company has continued to experience weak passenger demand and bookings in April 2020, and operating revenues are currently estimated to decrease, year-over-year, in the range of 90 to 95 percent; available seat miles (ASMs, or capacity) are estimated to decrease approximately 60 percent, year-over-year; and load factor is estimated to be approximately 6 percent. For May 2020, operating revenues are also currently estimated to decrease, year-over-year, in the range of 90 to 95 percent; capacity is estimated to decrease in the range of 60 to 70 percent, year-over-year; and load factor is estimated to be in the range of 5 to 10 percent. The revenue environment remains uncertain, and the Company is unable to reasonably estimate trends beyond May 2020.
"Our Employees are taking great care of each other and our Customers. We have implemented enhanced aircraft cleaning procedures, and we are continuing to explore options to further protect the health and safety of our Employees and Customers. Our People have risen to the occasion, once again, approaching current challenges with Teamwork, bravery, and resolve. And, our magnificent, dedicated, and fearless health care professionals also deserve our deepest appreciation; as do essential personnel from first responders to truck drivers, from grocery store workers to frontline communication workers. We are proud of them all, and we remain committed to serving their communities and providing much-needed air travel to transport personnel and supplies.
"We entered this crisis prepared with the U.S. airline industry's strongest balance sheet and most successful business model. While the impact of the pandemic is unprecedented, we believe demand for air travel will rebound. And, we intend to emerge with ample liquidity and an unwavering focus on our enduring Purpose—to connect People to what is important in their lives through friendly, reliable, and low-cost air travel."
Revenue Results and Outlook
The Company's first quarter 2020 total operating revenues decreased 17.8 percent, year-over-year, to $4.2 billion, due primarily to the sharp decline in passenger demand and bookings beginning in late February, combined with an unprecedented level of close-in trip cancellations in March 2020, due to the pandemic. First quarter 2020 operating revenue per available seat mile (RASM, or unit revenues) was 11.98 cents, and decreased 11.8 percent, driven primarily by a load factor decrease of 13.3 points, offset slightly by a passenger revenue yield increase of 4.0 percent, all year-over-year. January and February 2020 unit revenues were in line with original expectations for first quarter year-over-year RASM growth in the range of 3.5 to 5.5 percent. With the sudden and severe drop-off in passenger demand caused by COVID-19 concerns, the load factor for March 2020 was only 46.6 percent, compared with 85.7 percent in March 2019, with a load factor of approximately 20 percent for the second half of March 2020.
The Company has continued to experience weak passenger demand and bookings in April 2020, and operating revenues are currently estimated to decrease, year-over-year, in the range of 90 to 95 percent; available seat miles (ASMs, or capacity) are estimated to decrease approximately 60 percent, year-over-year; and load factor is estimated to be approximately 6 percent. For May 2020, operating revenues are also currently estimated to decrease, year-over-year, in the range of 90 to 95 percent; capacity is estimated to decrease in the range of 60 to 70 percent, year-over-year; and load factor is estimated to be in the range of 5 to 10 percent. The revenue environment remains uncertain, and the Company is unable to reasonably estimate trends beyond May 2020.
Southwest Airlines (NYSE: LUV) stock price history
The image below, obtained from Google, shows the stock price history of Southwest over the last 5 years. And was a pretty good time for Southwest stockholders until the Covid-19 pandemic hit. 5 years ago the stock was trading at around $34.50 a stock and its currently trading at $35.87 a stock. That's a return of 3.9% provided to Southwest stockholders over the last 5 years.
The stock of Southwest Airlines is trading at a lot closer to its 52 week low of $22.46 than it is to its 52 week high of $58.83 which to us is a clear indication that the short term sentiment and momentum of Southwest Airlines is very negative right now, and rightly so considering the impact Covid-19 is having on their business
The stock of Southwest Airlines is trading at a lot closer to its 52 week low of $22.46 than it is to its 52 week high of $58.83 which to us is a clear indication that the short term sentiment and momentum of Southwest Airlines is very negative right now, and rightly so considering the impact Covid-19 is having on their business
Southwest Airlines (LUV) vs American Airlines (AAL) stock vs Delta Airlines (DAL)
The image below shows the stock price performance of Southwest Airlines (LUV), American Airlines (AAL) and Delta Airlines (DAL) over the last 3 years. And from the image it is clear that its not been a good time for any of the airlines over the last 3 years. Especially since the start of February 2020. Over the three year period the stock of Southwest Airlines declined by -42.15%, while Delta Airlines declined by -43.48% and American Airlines declined by a whopping 66.01% over the last 3 years. American Airlines is by far the worst performer of the three
Recent coverage of Southwest Airlines
The extract below discusses the latest news regarding Southwest Airlines as obtained from Finance.Yahoo.com (published 5 June 2020)
In the latest trading session, Southwest Airlines (LUV) closed at $38.18, marking a -0.24% move from the previous day. This change lagged the S&P 500's daily gain of 2.62%. At the same time, the Dow added 3.16%, and the tech-heavy Nasdaq gained 2.06%. Wall Street will be looking for positivity from LUV as it approaches its next earnings report date. The company is expected to report EPS of -$2.94, down 314.6% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $576.65 million, down 90.24% from the year-ago period.
Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of -$4.30 per share and revenue of $10.69 billion. These totals would mark changes of -200.7% and -52.31%, respectively, from last year. Any recent changes to analyst estimates for LUV should also be noted by investors. These revisions help to show the ever-changing nature of near-term business trends. With this in mind, we can consider positive estimate revisions a sign of optimism about the company's business outlook. Based on our research, we believe these estimate revisions are directly related to near-team stock moves. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.
Read the full article here
In the latest trading session, Southwest Airlines (LUV) closed at $38.18, marking a -0.24% move from the previous day. This change lagged the S&P 500's daily gain of 2.62%. At the same time, the Dow added 3.16%, and the tech-heavy Nasdaq gained 2.06%. Wall Street will be looking for positivity from LUV as it approaches its next earnings report date. The company is expected to report EPS of -$2.94, down 314.6% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $576.65 million, down 90.24% from the year-ago period.
Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of -$4.30 per share and revenue of $10.69 billion. These totals would mark changes of -200.7% and -52.31%, respectively, from last year. Any recent changes to analyst estimates for LUV should also be noted by investors. These revisions help to show the ever-changing nature of near-term business trends. With this in mind, we can consider positive estimate revisions a sign of optimism about the company's business outlook. Based on our research, we believe these estimate revisions are directly related to near-team stock moves. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.
Read the full article here
Southwest Airlines (NYSE: LUV) latest stock valuation
So what is Southwest Airlines stock worth based on the release of their latest earnings report? Based on the earnings report and fiscal guidance provided by Southwest Airlines our our valuation models provide a target (full value) price for Southwest Airlines stock at $57.40 a stock (down significantly from our last valuation of Southwest Airlines). We therefore believe that the stock of Southwest Airlines is undervalued
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $57.40. Therefore we believe a good entry point into Southwest Airlines stock is at $51.70 or below. We expect the stock price of Southwest Airlines to increase to levels to closer to our target price in coming weeks and months.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $57.40. Therefore we believe a good entry point into Southwest Airlines stock is at $51.70 or below. We expect the stock price of Southwest Airlines to increase to levels to closer to our target price in coming weeks and months.
Next earnings release date for Southwest Airlines
It is expected that Southwest Airlines 2nd quarter 2020 earnings report will be released in late September 2020.