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Cheaper fuel shoots Southwest fourth-quarter earnings sky-high

by Christen Simeral
Jan 23, 2014

Southwest Airlines Co. reported record-high fourth-quarter earnings Thursday due to lower fuel prices and higher bookings. Despite the positive showing, Southwest shares fell 2.4 percent.

In the three months ended Dec. 31, the Dallas-based company posted net income of $212 million, or 30 cents per diluted share, up 171.8 percent from $78 million, or 11 cents per diluted share, in the year-ago period.

Results were better than estimates by securities analysts. Wall Street analysts surveyed by Zacks Investment Research Inc. were expecting Southwest to earn 28 cents per diluted share.

Revenues rose 6.1 percent to $4.43 billion, up from $4.17 billion the previous year.

“While traffic was impacted at the beginning of the quarter by the federal government shutdown, we saw a healthy rebound in traffic and revenue trends,” said CEO Gary Kelly. Kelly attributed the increase in revenues to more stable fuel prices. At the close of the fourth quarter, fuel costs were $3.05 per gallon, an 8 percent decline from the year-ago period.

Higher fares and a 3 percent increase in seats per trip triggered a 6.5 percent increase in passenger revenue from the year-ago period. Operating expenses decreased 1 percent from the year-ago period after the airline removed several Boeing 717s from service.

Helane Becker, an analyst at Cowen and Company, maintained her buy rating. Based on its high performance over its competitors, Southwest is Becker’s top pick in the industry and she belives the company’s outlook for 2014 is strong.

“Southwest still has several catalysts ahead to move the shares higher,” said Becker. The company will launch international expansion this year, which Becker forecasts will be a “game-changer” for the company. It will announce its international destinations this month.

For the year-ended Dec. 31, Southwest earned $754 million, or $1.05 per diluted share, up 79.1 percent from $421 million, or 56 cents per diluted share, in 2012. Wall Street analysts surveyed by Zacks Investment Research Inc. were expecting Southwest to earn $1.08 per diluted share for the full year.

Revenue for 2013 rose 3.6 percent to $17.7 billion from $17.09 billion in 2012.

Southwest shares closed at $21.25 Thursday, down 52 cents from Wednesday’s close of $21.77.