Southwest Airlines (LUV) on Tuesday reported mixed first-quarter results as well as plans to raise more capital and a re-evaluation of its Boeing (BA) aircraft orders. Southwest stock fell, while other airline stocks rose.
XSouthwest Earnings
Estimates: Wall Street expects Southwest earnings to swing to a loss of 48 cents per share from a year-ago profit of 70 cents, according to Zacks. Revenue is seen falling 15% to $4.4 billion.
Results: Loss of 15 cents a share on revenue of $4.2 billion. Unit revenue fell 11.8%. April and Macy operating revenues are both expected to be down 90%-95%.
As of April 24, Southwest had cash and short-term investments totaling $9.3 billion, with leverage of 47%, and expects to receive the rest of its bailout, approximately $1.6 billion, over the next three months. Under a separate government loan program, the company plans to apply for another $2.8 billion.
Southwest also announced a public stock offering of 55 million shares, worth around $1.6 billion and plans to issue $1 billion in additional debt
The airline now sees the Boeing 737 Max removed from its flight schedule through Oct. 30. "In light of the current environment, we are in the process of revising our aircraft order book with Boeing and will continue partnering with Boeing on a sensible delivery schedule."
Southwest Stock
Southwest stock fell 2% to 28.50 in the stock market today. Among other airline stocks, Delta Air Lines (DAL), which reported earnings last week, rose 2.6%. American Airlines (AAL), which reports Thursday, added 1.5%.
United Airlines (UAL) gained 1.8%. United also reports Thursday.
Southwest stock has a 24 Composite Rating and an EPS Rating of 70.
Analysts and airline executives say it could take years for the airline industry to recover from the coronavirus pandemic, which prompted nations to close off global air travel and U.S. states to issue stay-at-home orders. Airline stocks have fallen hard, and still badly trail the S&P 500.
The government has stepped in with rescue aid, offering passenger carriers $25 billion in grants and loans to keep employees paid, and another $25 million in other loans. But analysts worry it won't be enough to prevent layoffs later this year.
'Almost Zero' Demand
Southwest Airlines said it expected to get around $3.3 billion in government aid — part of that first $25 billion — in four installments from April to July. Some $2.3 billion is in direct grants. The rest is a loan. In exchange, Southwest will give the Treasury Department warrants allowing the government to buy up to around 2.6 million shares of Southwest stock.
Airlines can't involuntarily furlough employees or cut their pay through Sept. 30 if they want that money. They also can't issue buybacks or dividends through next September.
Last week, Delta said passenger demand had fallen to "almost zero," as travel booking went silent and passengers canceled flights and scrambled for refunds. The people who were traveling, Delta said, were people who absolutely needed to, like first responders and "people who need to get to see sick people."
In an effort to assuage passengers wary of contracting the virus, airlines have made a public display of their efforts to disinfect flight cabins, from aircraft fogging, to spraying down seats and baggage bins with electrostatic sprayers, to blocking off middle seats.
But as airlines burn through cash, analysts have turned their focus to their balance sheets, cash and debt.
Those balance sheets are stronger today than they were during the financial crisis more than a decade ago. Southwest over the past five years is among the airlines that has built up its cash position as a share of its total debt, according to research by Cowen. Delta, American and United now have less cash as it relates to debt.
Southwest had around $4 billion each in cash and debt at the end of last year. By comparison, Delta had $17.2 billion in debt and $2.9 billion in cash, Cowen said.
Cowen said debt for the average U.S. airline rose to around $10.8 billion last year, from roughly $8.5 billion in 2014.
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