Southwest Airlines Stock Down 12% After Deep Cuts To 2025 Profit Outlook https://t.co/E4pjugCNf4 https://t.co/E4pjugCNf4 ...

Southwest Airlines Stock Down 12% After Deep Cuts To 2025 Profit Outlookhttps://t.co/aNQ2wQ4rb2 https://t.co/2M6g4t9b7k ...

Financial Data and Key Metrics Changes - The company updated its full-year EBIT guidance to a range of $600 million to $800 million, reflecting a significant drop from the previous guidance of $1.7 billion due to a decline in the macro environment and higher fuel costs [11][12][26] - The company expects a meaningful year-over-year improvement in EBIT despite the revised guidance, with significant EBIT expansion anticipated in 2026 as initiatives ramp up [11][12][26] Business Line Data and Key Metrics Changes - The revenue contribution from bag fees has exceeded expectations, with an estimated EBIT contribution of over $350 million for the full year 2025, which is higher than initial estimates [27][28] - The company has successfully implemented a basic economy product and check bag fees, with no negative operational impact observed [15][50] Market Data and Key Metrics Changes - The macro environment stabilized in the second quarter, with signs of improvement in industry demand and recent bookings showing positive trends [11][12][36] - The company expects to benefit from a recovery in domestic demand due to its overweighting in the domestic market [12] Company Strategy and Development Direction - The company is undergoing a transformational journey aimed at evolving its product offerings and increasing shareholder value, with a focus on cost reduction and operational efficiency [5][6][10] - New initiatives include the introduction of assigned premium seating and enhanced benefits for co-brand credit cards, which are expected to drive incremental revenue [10][21][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current industry demand environment and achieve EBIT targets through various initiatives [26][36] - The company is optimistic about the future, with plans to continue executing its transformational initiatives and enhancing customer value [12][36] Other Important Information - The company has authorized a new $2 billion share repurchase program, demonstrating confidence in its strategic plan and financial position [12][35] - The company has increased its aircraft delivery assumptions for 2025 from 38 to 47, reflecting positive trends in Boeing's production ramp-up [33][79] Q&A Session Summary Question: How should we think about the EBITDA initiatives ramping up over Q3 and Q4? - Management indicated that the majority of this year's expected EBIT will be produced in Q4 due to the ramp-up of initiatives and improvements in the demand environment [40][42] Question: Is the rollout of bag fees tracking ahead of plan? - Management confirmed that the rollout has exceeded expectations, with no operational impact and an increase in checked bags per passenger [48][50][52] Question: What is the outlook for corporate travel demand? - Management noted a positive trend in corporate travel, with improvements observed from May to August [93][96] Question: How do you plan to handle aircraft sales in terms of cash flow and P&L? - Management explained that aircraft sales will provide cash proceeds and book gains, contributing positively to cash flow [91][92] Question: What percent of tickets are clearing at an ultra-low-cost carrier fare? - Management indicated that roughly half of the seats are being sold in the lowest fare category, reflecting a shift in customer behavior [100][102]

Financial Data and Key Metrics Changes - The company updated its full-year EBIT guidance to $600 million to $800 million, reflecting a nearly $1 billion drop due to a decline in the macro environment and a $100 million decrease from higher fuel costs [9][10][23] - The company expects significant EBIT expansion in 2026 as the value contribution from its initiatives continues to accelerate [9][10] Business Line Data and Key Metrics Changes - The revenue contribution from bag fees has exceeded expectations, with an estimated EBIT contribution of over $350 million for the full year 2025, compared to initial estimates [25] - The company has successfully executed its cost savings target of $370 million for 2025, primarily through headcount reductions and other cost-saving measures [26] Market Data and Key Metrics Changes - Industry demand stabilized in the second quarter, with recent bookings showing clear signs of improvement [9] - The company outperformed its large industry peers on domestic unit revenue, with a year-over-year RASM decline of 3.1% in the second quarter [20][21] Company Strategy and Development Direction - The company is on a transformational journey, focusing on evolving its product offerings and delivering increased value for shareholders [4][10] - New initiatives include the introduction of a basic economy product and the rollout of assigned premium seating, which are expected to enhance product differentiation [8][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the improving demand environment and the company's ability to execute its initiatives effectively [9][10] - The company anticipates a constructive backdrop for the second half of the year and into 2026, driven by improved demand and cost discipline [9][10] Other Important Information - The company has authorized a new $2 billion share repurchase program, expected to be completed over two years, reflecting confidence in its transformational plan [10][33] - The company has increased its aircraft delivery assumptions from 38 to 47 for 2025, indicating positive progress from Boeing [30][80] Q&A Session Summary Question: How should we think about the EBITDA initiatives ramping up over Q3 and Q4? - Management indicated that the majority of this year's expected EBIT will be produced in Q4 due to a combination of initiatives ramping up and assumptions around demand improvement [40][42] Question: Is the rollout of bag fees tracking ahead of plan? - Management confirmed that the rollout has exceeded expectations, with no operational impact and an increase in checked bags per passenger [48][52] Question: Does the macro plus basic economy explain the entire decline in core EBIT? - Management stated that the decline is fully explained by macro impacts and the challenges faced with the basic economy rollout [62] Question: What percent of tickets are clearing at an ultra-low-cost carrier fare? - Management noted that roughly half of seats are being sold in the basic economy bucket, indicating a shift in customer behavior [100][104] Question: Is there any interest in the MAX 10 aircraft once approved? - Management hinted at potential interest in further segmentation of premium demand but did not provide specific details [105]

Core Viewpoint - Southwest Airlines stock experienced a significant decline of 11.9% after missing analyst expectations for both sales and earnings in Q2 [1][3] Financial Performance - Southwest Airlines reported adjusted earnings of $0.43 per share, missing the expected $0.51, with quarterly sales of $7.24 billion, slightly below the anticipated $7.29 billion [1][3] - Actual earnings per share, calculated under GAAP, were $0.39, representing a 33% decrease from the previous year, despite only a 1.5% decline in revenue [3] - The decline in profit margins was attributed to a 9% increase in salaries, wages, and benefits, along with an 11% rise in landing fees, while fuel costs had decreased significantly [3] Future Guidance - Management projects earnings of at least $600 million for the year, excluding interest and taxes, and considers the stock to be undervalued [4] - A $2 billion stock buyback program has been announced, aimed at retiring more shares following the recent sell-off [4] Valuation Metrics - The stock is currently priced at 39 times earnings, which may appear expensive, but analysts forecast a potential doubling of profits next year to $2.25 per share [4] - With a forward earnings multiple of 15, no net debt, and a dividend yield of 1.9%, there are indications that Southwest stock could be a potential buy [5]

Financial Performance & Guidance - Southwest Airlines missed on both top and bottom lines, leading to a stock decrease of almost 10% [1] - The company had completed a $2.5 billion share buyback program and finished $1.5 billion in the second quarter [8] - The board approved an additional $2 billion share repurchase program over two years [9] - Southwest Airlines initially guided for $1.7 billion in EBIT for the full year, but the difference is attributed to macro factors [12] Demand & Capacity Management - Demand slipped about 6% from the beginning of the year, but stabilized in the second quarter with signs of inflection in the last month or so [3] - The company has taken another 1.5 percentage points out of capacity for the back half of the year, with growth for the year expected to be about 1 percentage point [6] - Basic economy bookings and revenue saw a slip due to friction in the booking process, but the issue was resolved within two weeks [4][5] - After changes to the basic economy booking flows, the company has seen stable demand and conversion rates return to or exceed prior levels [7] Strategic Initiatives - Bag fees are expected to generate $350 million in EBIT this year and a run rate of about $1 billion per year [9] - Assigned seating, launching next week for flights in January of next year, is anticipated to perform well, with over 80% of customers (85% of customers that don't fly Southwest Airlines) desiring it [10][11]

Market Movements - As of July 24, U.S. stock index futures showed mixed results with Dow futures down 0.38%, S&P 500 futures up 0.13%, and Nasdaq futures up 0.33% [1] - European indices also showed positive movements, with Germany's DAX up 0.57%, UK's FTSE 100 up 0.97%, and the Euro Stoxx 50 up 0.42% [2][3] - WTI crude oil increased by 0.77% to $65.75 per barrel, while Brent crude oil rose by 0.61% to $68.93 per barrel [3][4] Company News - Smead Capital Management warned that current U.S. stock valuations have reached a "death line," similar to levels seen during the internet bubble, with top ten companies being more expensive than at the bubble's peak [4] - Google (GOOGL.US) reported Q2 revenue of $96.43 billion, exceeding analyst expectations, with cloud business sales up nearly 32% [8] - Tesla (TSLA.US) reported a 16% decline in Q2 revenue to $22.5 billion, missing analyst expectations, and warned of poor performance in upcoming quarters [9] - IBM (IBM.US) saw Q2 sales grow 8% to $17 billion, driven by its infrastructure business, but faced challenges in its software and consulting segments [10] - T-Mobile US (TMUS.US) exceeded user growth expectations in Q2, adding 830,000 contract customers, and raised its full-year guidance [11] - Nokia (NOK.US) reported a 29% drop in adjusted operating profit due to tariff impacts and a weak dollar, with revenue growth of only 2% [12] - Deutsche Bank (DB.US) turned a profit of €1.485 billion in Q2, significantly improving from a loss the previous year, driven by strong performance in fixed income and foreign exchange trading [13] - Vodafone (VOD.US) reported a 3.9% increase in Q1 revenue, with signs of stabilization in its German operations [14] - Total (TTE.US) experienced a 23% drop in Q2 profit due to falling oil and gas prices, while net debt increased by 29% [15] - Southwest Airlines (LUV.US) reported Q2 revenue of $7.24 billion, slightly below expectations, and cut its annual profit forecast by $1 billion due to economic uncertainties [16] Economic Data and Events - Upcoming economic data includes initial jobless claims and manufacturing PMI [17]

Core Viewpoint - Southwest Airlines reported a second-quarter revenue of $7.24 billion, slightly below the expected $7.3 billion, with adjusted earnings per share of $0.43, lower than the anticipated $0.53. The company expects economic turmoil to consume up to $1 billion of its annual pre-tax profit, leading to a significant reduction in its 2025 shareholder return forecast [1] Group 1: Financial Performance - The company’s second-quarter revenue was $7.24 billion, slightly below the expected $7.3 billion [1] - Adjusted earnings per share were $0.43, lower than the analyst expectation of $0.53 [1] - Southwest Airlines anticipates a pre-tax profit of $600 million to $800 million for 2025, down from an earlier estimate of $1.7 billion [1] Group 2: Market Conditions and Competition - Southwest Airlines provided a more cautious outlook compared to larger competitors like United Airlines and Delta Air Lines, which reported a recovery in travel demand [2] - Factors such as frequent tariff policies, inflation pressures, and operational chaos at some hub airports have negatively impacted consumer confidence and demand [2] - Delta Airlines noted improvements in corporate travel demand, while United Airlines indicated that demand recovery could lead to exceeding its 2025 profit targets [2] Group 3: Strategic Initiatives - The company is undergoing a significant transformation plan, moving away from its long-standing "one-size-fits-all" business model [2] - Southwest Airlines plans to introduce more spacious premium seating, designated seating services, and new boarding processes starting next year [2] - The company has begun charging for checked baggage since May, with the initiative exceeding expectations without negatively impacting flight operations [3] Group 4: Revenue Projections - Southwest Airlines expects a unit revenue growth range of -2% to 2% for the third quarter, compared to analysts' previous expectation of a 1.7% increase [4] - The company aims to achieve $1.8 billion in pre-tax profit by 2025 and $4.3 billion by 2026 through cost reductions and increased revenue from new fare packages and service fees [3] Group 5: Shareholder Returns - The board of Southwest Airlines has approved a $2 billion stock buyback plan, expected to be completed within two years [5]

Core Insights - Southwest Airlines reported a revenue of $7.24 billion for the quarter ended June 2025, reflecting a decrease of 1.5% year-over-year and a surprise of -0.7% compared to the Zacks Consensus Estimate of $7.3 billion [1] - The earnings per share (EPS) for the quarter was $0.43, down from $0.58 in the same quarter last year, resulting in an EPS surprise of -15.69% against the consensus estimate of $0.51 [1] Financial Performance Metrics - Load factor was reported at 78.5%, below the average estimate of 81.3% from five analysts [4] - Revenue passenger miles (RPMs) totaled 36.89 billion, compared to the average estimate of 37.9 billion from four analysts [4] - Available seat miles (ASMs) were 47 billion, slightly above the average estimate of 46.86 billion [4] - Passenger revenue per ASM (PRASM) was 14.1 cents, below the average estimate of 14.19 cents [4] - Cost per available seat mile (CASM), excluding fuel and oil expenses, was 12.04 cents, slightly above the average estimate of 12.01 cents [4] - Revenue per available seat mile (RASM) was 15.41 cents, below the average estimate of 15.59 cents [4] - Fuel costs per gallon were $2.32, slightly lower than the average estimate of $2.34 [4] - Fuel consumed was 570 million gallons, slightly above the average estimate of 569.05 million gallons [4] - Operating revenues from passenger services were $6.63 billion, in line with the average estimate of $6.6 billion, representing a year-over-year decline of 1.3% [4] - Operating revenues from other sources were $573 million, below the average estimate of $647.94 million, reflecting a year-over-year decline of 4% [4] - Operating revenues from freight were $44 million, below the average estimate of $48.31 million, indicating a year-over-year decline of 2.2% [4] Stock Performance - Shares of Southwest Airlines have returned +16.7% over the past month, outperforming the Zacks S&P 500 composite's +5.9% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Financial Performance - Southwest Airlines reported quarterly earnings of $0.43 per share, missing the Zacks Consensus Estimate of $0.51 per share, and down from $0.58 per share a year ago, representing an earnings surprise of -15.69% [1] - The company posted revenues of $7.24 billion for the quarter ended June 2025, missing the Zacks Consensus Estimate by 0.7%, and down from $7.35 billion year-over-year [2] - Over the last four quarters, Southwest has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [2] Stock Performance and Outlook - Southwest shares have increased approximately 10.6% since the beginning of the year, outperforming the S&P 500's gain of 7.3% [3] - The company's earnings outlook, including current consensus earnings expectations for upcoming quarters, will be crucial for investors [4] - The current consensus EPS estimate for the coming quarter is $0.28 on $7.08 billion in revenues, and $1.10 on $28.05 billion in revenues for the current fiscal year [7] Industry Context - The Transportation - Airline industry is currently in the top 36% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5][6]