What's in the Cards for Southwest Airlines in Q3 Earnings?

Southwest Airlines Co. (LUV) is scheduled to report third-quarter 2024 results on Oct. 24.

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Southwest Airlines surpassed the Zacks Consensus Estimate in two of the preceding four quarters, the average beat being 61.62%. However, the company missed the Zacks Consensus Estimate in one quarter and met the mark in the remaining quarter.

Let’s see how things have shaped up for Southwest Airlines this earnings season.

LUV’s Q3 Expectations

The Zacks Consensus Estimate for LUV’sthird-quarter 2024 revenues is pegged at $6.80 billion, indicating 4.2% year-over-year growth. The top line is likely to have been aided by healthy leisure demand and continued yield strength.

Further, LUV’s encouraging third-quarter 2024 guidance is added positive. LUV now anticipates its third-quarter revenue per available seat mile (RASM or unit revenues) to increase in the range of 2%-3% on a year-over-year basis. This marks an improvement from the previous forecast of flat to down 2%. The upside in revenue performance was driven by improving industry demand trends and the company's revenue management techniques. Our estimate implies a growth of 2.1% year over year.

Apart from the air travel demand strength, additional revenues in July related to the CrowdStrike CRWD-induced disruptions across the industry also contributed to LUV’s top-line growth. The global technology outage on July 19, 2024, caused by security software provider CrowdStrike’s software update, has hit some of the major U.S. airlines, leading to multiple flight cancelations. LUV reaped the benefits from the troubles of its competitors’ flight cancelations.

Third-quarter capacity or available seat miles (ASMs) are still estimated to improve 2% from the year-ago reported figure.

Lower fuel costs should boost the company’s bottom line, as fuel expenses represent a key input cost for any transportation player. Economic fuel cost per gallon for the third quarter is now expected to be in the range of $2.50-$2.60 (prior view: $2.60 to $2.70).

Despite lowering fuel expenses, LUV continues to grapple with rising labor and airport costs, which are likely to dent bottom-line growth by resulting in a spike in operating expenses. For third-quarter 2024, consolidated unit cost or cost per available seat mile (CASM), excluding fuel, oil and profit-sharing expenses, and special items, is expected to increase in the range of 11-13% in the third quarter from the comparable period in 2023.

Interest expenses are now expected to be $63 million (prior view: $62 million) in the third quarter. Higher interest expense is also likely to weigh on LUV’s bottom line. Notably, the Zacks Consensus Estimate for LUV’s third-quarter 2024 earnings has been revised downward by 80% in the past 90 days to 5 cents per share. Moreover, the consensus mark implies an 86.8% decline from the year-ago actuals.

What Our Model Says for LUV

Our proven model does not conclusively predict an earnings beat for Southwest Airlines this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Southwest Airlines has an Earnings ESP of 0.00% and a Zacks Rank #2.

LUV’s Q2 Highlights

Southwest Airlines reported second-quarter 2024 earnings of 58 cents per share, which outpaced the Zacks Consensus Estimate of 50 cents but declined 46.7% from the year-ago reported quarter.

Revenues of $7.354 billion surpassed the Zacks Consensus Estimate of $7.323 billion and improved 4.5% year over year. The uptick resulted from solid demand trends, quarterly record passenger carried, higher passenger revenues, and ancillary revenues. Further, managed business revenues continued to improve on a year-over-year basis.

Stocks to Consider

Here are a few stocks from the broader Zacks Transportation sector that investors may consider, as our model shows that these have the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson CHRW has an Earnings ESP of +5.14% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks.

CHRW is scheduled to report third-quarter 2024 earnings on Oct. 30. Low operating costs are expected to have aided CHRW’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for third-quarter earnings has been revised 1.9% upward in the past 60 days. CHRW’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters and missed once, the average beat being 7.3%.

Norfolk Southern Corporation (NSC) has an Earnings ESP of +0.02% and a Zacks Rank #3.

NSC is scheduled to report third-quarter 2024 results on Oct. 22, before market open. NSC has a disappointing earnings surprise history, having lagged the Zacks Consensus Estimate in three of the preceding four quarters (surpassed once), the average miss being 0.45%. The Zacks Consensus Estimate for NSC’s third-quarter 2024 earnings has been revised 0.6% upward in the past 90 days.

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Southwest Airlines Co. (LUV): Free Stock Analysis Report
 
Norfolk Southern Corporation (NSC): Free Stock Analysis Report
 
C.H. Robinson Worldwide, Inc. (CHRW): Free Stock Analysis Report
 
CrowdStrike (CRWD): Free Stock Analysis Report

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