Southwest Airlines Company (LUV, Financial) seems to be on an high after it squashed analysts' expectations. The airline company went on to report 66 cents adjusted earnings per diluted share as compared to the 65 cents' estimate by analysts. Share value rose by 1.8% to $43.62 in mid-morning trading after the financial report for the first quarter was revealed.
Financial Matrix
According to a data polled by Thomson Reuters, analysts had estimated the Q1 earnings per share to be $0.65. It looks like the reported $0.66 earnings per share or $453 million has given shareholders a reason to celebrate. This was nearly thrice the amount as compared to last years' record of $152 million. The total operating revenue reported was $4.4 billion. This was a 6% increment over the operating revenue reported for the same period last quarter. The main reason for the increased profit was the low cost of fuel in recent times. The economic fuel costs for one gallon for Q1 2015 was $2.00. Last year, the company had to shell out $3.08 per gallon in the first quarter.
Word from the top
The reduced prices resulted in a whooping $450 million savings in fuel costs alone, said CEO and Chairman Gary Kelly. Besides fuel savings as the primary reason, he attributed the high earnings to the efforts put in to control other costs. He said that the company was very pleased as the increased gauge, stage length, lower fuel prices and low maintenance costs resulted in a good unit cost trend. Mr. Kelly said the high booking trends by passengers are continuing in this month. But, Q2 2015 seems to be challenging due to the exceptional performance last year. In-spite of increasing the gauge and the stage length of the flight, he said that a 2% decline of revenues is expected in this month.
USA's fourth biggest Airlines increased the carrying capacity by 6% this quarter. Besides, people traveled 7% more miles as compared to 2014. Hence, on an average basis, the flight was almost 80.1% full. The Dallas-based company's highest expenditure was on labor. Salaries and wages along with benefits costs increased 11% to $1.42 billion. The airlines is currently only using its Boeing 737's presently. New & cost-efficient planes are now taking over the old and low fuel-efficient ones. Moreover, the construction of a new international gateway at Houston will increase the international capacity by a percent or so.
Shareholder’s take
Shareholders do not have any reason to fret as Southwest stocks do not seem to be slowing down anytime soon. Moreover, the company has announced that it will repurchase its $80 million shares. This is the final buyback of the $1 billion stock repurchase program. Besides, the airlines has bought back around $300 shares in the first quarter and has also given out $81 million in form of dividends.
TheStreet Inc. (TST, Financial) rated the airlines as a BUY. The company has strengths in many areas like good return on equity, solid financial position, good EPS, high revenue growth, etc. These strengths will surely dominate over the reality that the airlines has had sub par growth in income. In 2014, the airlines clobbered the Standard & Poor's 500 Index by increasing up to 125%. This year will also witness a similar trend. Let’s hope that the airlines not only satisfies their customers by providing a great travel experience, but also satisfies their shareholders in terms of a high EPS in many more quarters to come.
