The Zacks Analyst Blog Highlights: Southwest Airlines, United Continental Holdings, Delta Air Lines, Boeing and Whirlpool

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Apr 13, 2012, 09:30 ET

CHICAGO, April 13, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Southwest Airlines Co. (NYSE: LUV), United Continental Holdings Inc. (NYSE: UAL), Delta Air Lines Inc. (NYSE: DAL), Boeing Co. (NYSE: BA) and Whirlpool Corporation (NYSE: WHR).

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Here are highlights from Thursday's Analyst Blog:

Southwest Traffic Falls in March

Traffic at Southwest Airlines Co. (NYSE: LUV), the largest U.S. low-cost carrier, inched down 0.9% year over year in March. Airline traffic is customarily measured in billions of revenue passenger miles.

On a year-over-year basis, consolidated capacity (or available seat miles) fell 0.9% and the load factor (percentage of seats filled by passengers) deteriorated 10 basis points (bps) to 81.8%. Passenger revenue per available seat mile (PRASM) rose 5% year over year in March compared to increases of 4% in February and 7% in January.

In the first quarter of this year, traffic dipped 0.1% on load factor decline of 110 bps year over year partially offset by capacity increase of 1.2%. In addition, Southwest expects strong passenger revenue in the first quarter. Management did not provide any specific projection for the first quarter unit costs but it expects to register higher growth compared to $0.0783 (excluding fuel and special item) in first quarter 2011.

The company, slated to release first quarter earnings on April 19, does not expect to report profits due to high fuel costs. The Zacks Consensus estimates a loss of 5 cents for the first quarter, representing a substantial 266.67% decline on an annualized basis.

Fuel costs, including fuel taxes are estimated at approximately $3.50 per gallon, which is higher than its previous expectation of $3.35 per gallon. Coupled with surging fuel prices, Southwest expects non-fuel costs to grow modestly this year primarily due to higher salaries, wages and benefits, and airport costs.

Although Southwest is poised to benefit from fleet rightsizing, the Evolve retrofit program, steady capacity growth, All-New Rapid Rewards, AirTran merger synergies and several ancillary revenues, we are mainly concerned about high maintenance and operating costs associated with fleet rightsizing and modernization. Additionally, the successful integration of AirTran would result in a one-time charge of $500 million, of which $134 million was expended last year.

Moreover, new advertising rules and stiff competition from United Continental Holdings Inc. (NYSE: UAL) and Delta Air Lines Inc. (NYSE: DAL) keep us cautious on the stock. Besides, Southwest is dependent on Boeing Co. (NYSE: BA) as its sole supplier for aircraft. If Southwest is unable to acquire additional aircraft from Boeing or if the latter is unable to provide adequate support, the company's profitability will inevitably be hampered.

The company also launches fare sales from time-to-time, with discounted ticket prices in order to boost sales. These actions, however, hurt overall revenues.

Based on expected weak first quarter projections and feeble macro data points in the entire airline industry, we recently downgraded our long-term recommendation to Underperform on Southwest. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank.

Whirlpool Opens New Plant

Whirlpool Corporation (NYSE: WHR) has opened a million-square-feet facility in East Tennessee that will manufacture premium cooking products. The new facility, replacing a 123-year-old plant at the same location, will add 130 jobs to the company's 1,500 people workforce.

The company has invested $200 million in the project. The facility also includes a 400,000-square-foot distribution center.

Whirlpool posted a profit of $2.62 per share for the fourth quarter of 2011 compared with $171 million or $2.19 per share in the same period last year. However, excluding special items, profits decreased to 32 cents per share from 43 cents per share in the fourth quarter of 2010. It was significantly lower than the Zacks Consensus Estimate of $1.93 per share.

Sales in the quarter fell marginally to $4.9 billion from $5.0 billion as improving price/mix was offset by unfavorable currency and lower industry demand. It was slightly lower than the Zacks Consensus Estimate of $5.0 billion.

Sales in North America rose a meager 1% to $2.6 billion. Operating profit improved to $202 million from $53 million in the previous year. It was favorably affected by the implementation of previously announced price increases and improved product mix that more than offset lower industry volumes, higher material costs and the impact from lower production volumes. Whirlpool expects U.S. industry unit shipments to increase in the range of 0%–3% in 2012.

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