Southwest Airlines Edges Out Estimates in Q1

Southwest Airlines Co. (NYSE: LUV) released its first-quarter earnings report before the markets opened on Thursday. The airline giant said it had $0.88 in earnings per share (EPS) on $4.83 billion in revenue, which compares to consensus estimates from Thomson Reuters of $0.84 in EPS on revenue of $4.81 billion. The same period from last year had $0.66 in EPS on $4.41 billion in revenue.

The company ended the first quarter with 714 aircraft in its fleet. This reflects the delivery of seven new Boeing 737-800s and 13 pre-owned Boeing 737-700s, as well as the retirement of 10 Boeing 737 Classic aircraft.

During the quarter, operating revenues grew in line with available seat mile growth of 9.2%, which is a very strong performance, especially considering the increase in stage length.

Also the quarter had a unit cost decrease, excluding special items, of 2.6%, which benefited primarily from lower jet fuel prices, ongoing fleet modernization benefits and better on-time performance. First-quarter economic fuel costs declined 11.0% to $1.78 per gallon.
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Gary C. Kelly, chairman, president, and CEO of Southwest, commented:

We are delighted to report an outstanding start to 2016. Our first quarter net income, excluding special items, increased 25.7 percent to a first quarter record $567 million, or $.88 per diluted share. Our strong operating income produced a first quarter operating margin, excluding special items, of 19.7 percent, driven largely by record first quarter operating revenues and lower fuel prices. Our investment grade balance sheet, liquidity, and cash flow remain strong. We generated record first quarter free cash flow of $1.2 billion and returned $596 million to Shareholders through the combination of dividends and share buybacks during first quarter 2016. Next month, we expect to complete the repurchase of the remaining $200 million under our existing $1.5 billion share repurchase authorization. For the twelve months ended March 31, 2016, our ROIC was an exceptional 33.4 percent. My congratulations to our superb Employees on these tremendous results and their record first quarter profitsharing accrual of $155 million.

Free cash flow for the first quarter totaled a record $1.2 billion. On the books, cash and short-term investments totaled $3.6 billion.

Shares of Southwest closed Wednesday at $47.05, with a consensus analyst price target of $55.00 and a 52-week trading range of $31.36 to $51.34. Following the release of the earnings report, the stock was up 2.4% at $48.20, in early trading indications Thursday.