Southwest Airlines Co. LUVis slated to release first-quarter 2018 results on Apr 26, before the market opens.
In fourth-quarter 2017, the company delivered a positive earnings surprise of 1.32%. Moreover, its impressive earnings history shows outperformance of the Zacks Consensus Estimate in three of the last four quarters with an average beat of 1.
However, things are not looking up for the carrier in the first quarter due to multiple headwinds.
Let’s delve deeper into the factors likely to influence the stock’s quarterly performance.
Factors at Play
Southwest Airlines’ unit revenues are likely to be hurt due to pricing pressure and lower-than-expected demand for air travel resulting from the timing of the spring break. Notably, the carrier anticipates revenue per available seat mile (RASM: a key measure of unit revenue) to be flat with the year-ago figure of 13.23 cents. Lower unit revenues might in turn limit top-line growth.
The Zacks Consensus Estimate for first-quarter passenger unit revenues is pegged at 12.23 cents, lower than 12.50 cents reported in the previous quarter.
Additionally, high costs are also anticipated to affect the carrier’s bottom line in the quarter to be reported. The airline estimates operating expenses per available seat mile (CASM) excluding fuel and oil expense plus profit-sharing expense to rise 0-1%. Additionally, fuel costs are assumed at approximately $2.10 per gallon. The Zacks Consensus Estimate for average fuel costs also stands at $2.10 per gallon, above $1.96 reported a year ago.
Weather-related disruptions have also hampered the carrier’s operations since the beginning of the first quarter. The storms in January and March led to multiple flight cancellations by the airline, possibly inducing a massive adverse impact on the company’s top line.
However, the new tax law is a huge positive for the company. The enormous tax savings are likely to boost earnings in the quarter.
Earnings Whispers
Per our proven model, a company needs the right combination of the two key ingredients — a positive Earnings ESPand a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case here as highlighted below.
Zacks ESP: Southwest Airlines has an Earnings ESP of -2.04% as the Most Accurate estimate is pegged at 73 cents per share, lower than the Zacks Consensus Estimate of 75 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Southwest Airlines carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.