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Why Southwest Airlines Stock Fell after Its 3Q17 Earnings

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Oct. 30 2017, Published 10:55 a.m. ET

Southwest’s 3Q17 revenues miss estimates

Southwest Airlines (LUV) reported its 3Q17 earnings on October 26, 2017. The airline missed its consensus estimates for revenues while beating its estimates for earnings per share (or EPS).

The airline’s revenues grew 2.6% year-over-year (or YoY) to $5.27 billion, missing analyst estimates of $5.31 billion. It reported earnings per share of $0.88, which beat analyst estimates of $0.87 earnings per share for the quarter.

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How the markets reacted

Southwest Airlines’ (LUV) revenues missed estimates primarily due to the damage caused by Hurricanes Harvey, Irma, and Maria, which led to the cancellation of almost 5,000 flights. However, investors were more concerned about the intensifying competition among airlines that led to declining fares across the board.

Southwest Airlines stock, as a result, lost almost 3.6% on its results day and was almost flat at -0.05% in aftermarket trading.

American Airlines (AAL) and Spirit Airlines (SAVE) also reported their earnings on the same day. Disappointing earnings by AAL led to the stock falling 4.7% and closing at $48.60. Spirit Airlines stock rose 6.9% on better-than-expected earnings.

Alaska Air Group (ALK), which reported its earnings on October 25, also fell 5.1%. Delta Air Lines (DAL) fell 2.5%, and JetBlue Airways (JBLU) fell 0.66%. United Continental (UAL) was flat at 0.05%, while Allegiant Travel (ALGT) rose 1.1%.

The Consumer Discretionary SPDR ETF (XLY) gained 0.35% on the same day. The broader market, tracked by the SPDR S&P 500 ETF Trust (SPY), also rose 0.13%.

Series overview

In this series, we will analyze Southwest Airlines’ (LUV) performance for 3Q17. We’ll discuss management’s outlook and key indicators that investors can consider. We’ll also look at analyst’s estimates and recommendations for LUV stock after its 3Q17 earnings.

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