SWA Beats the Street

[Newpilot2b]

Andy - analysts were looking for a .05/share profit - they posted a .08/share profit. The net loss of .08/share included the fuel hedge accounting.

http://biz.yahoo.com/ap/090122/earns_southwest.html?.v=9

 

[Andy Neill]

The analysts were looking for a nickle bottom line profit. SWA delivered an 8 cent operational profit and an 8 cent bottom line loss.

 

[momalley81]

The analysts were looking for a nickle bottom line profit. SWA delivered an 8 cent operational profit and an 8 cent bottom line loss.

SWA lost nothing.

GAAP reporting requirements anyone?

 

[Secret Squirrel]

Hey MO,

You keep throwing around the term GAAP accounting, but I don't think you actually know what it means. SWA actually lost money trying to get out from under upside down fuel hedging.

 

[momalley81]

Hey MO,

You keep throwing around the term GAAP accounting, but I don't think you actually know what it means. SWA actually lost money trying to get out from under upside down fuel hedging.

No they didn't.

Let's say you buy a widget for $10, then soon after that widget becomes in high demand and the value shoots up to $100. You still have the widget so did you make $90? No. Since no money has been put in your bank account the value of your widget going from $10 to $100 is relatively meaningless.

But due to GAAP requirements you would have to report that gain in value. In this case $90.

Now, lets say the next year the value of your widget drops to $50. It losses almost HALF its value. In GAAP accounting you have to report that loss. But did you really lose anything?

No, the value of your widget is up from $10 to $40. But again that price increase and subsequent decrease is relatively meaningless. However, due to GAAP reporting requirements they are accouted for.

Understand?

 

[Secret Squirrel]

Your example is totally wrong because you never bought the fuel, You bought the right to take delivery at a future date for a certain price. What you fail to understand is it is only a GAAP issue until you have to actually take REAL CASH to get out from under your hedge. They have hedges at 60-70 dollar a barrel. They are selling fuel now for 40 dollars a barrel. At some point there is a guy that SWA agreed to buy fuel from at $60 a barrel. He is knocking at the door right now. You are paying $40 for the fuel, and giving $20 to the guy you gambled with. If your example was correct, there would have been no effect on your cash. SWA is burning through a ton of cash to try to get out from under these contracts.

 

[momalley81]

Your example is totally wrong because you never bought the fuel, You bought the right to take delivery at a future date for a certain price. What you fail to understand is it is only a GAAP issue until you have to actually take REAL CASH to get out from under your hedge. They have hedges at 60-70 dollar a barrel. They are selling fuel now for 40 dollars a barrel. At some point there is a guy that SWA agreed to buy fuel from at $60 a barrel. He is knocking at the door right now. You are paying $40 for the fuel, and giving $20 to the guy you gambled with. If your example was correct, there would have been no effect on your cash. SWA is burning through a ton of cash to try to get out from under these contracts.

Exactly, yet whether we pay $60 a barrel while oil is $147 OR we pay $40 a barrel and then pay $20 to the fuel hedge guy our estimated fixed costs are still the same. In both scenarios we are still paying $60 a barrel.

The FIXED cost for fuel is the same.

Yet the VALUE of the hedges is completely different.

 

[Secret Squirrel]

Yes, but now the guy is at the door, he wants his money, and you gave him cash. It was all play money created by the Mark to Market accounting practice brought to you because of the $hitbags at Enron. You keep making it sound like it is a paper loss. They lost the money it took to set up the contract, which was considerable, and they are paying at least 50% more FIXED COST for gas then everybody else. It is causing REAL CASH to leave their account. And they are spending even more money to try to buy their way out of future contracts. SWA is a great company, and their fuel hedge program has been a huge asset to the company for many years. This was a perfect storm that has hurt them, make no mistake about that.

 

[Benjamin Dover]

Have you got a source that says the operational profit expectation was a nickle?

Not to pour water on your flame dude, but wall street expectation excluded special items. Plenty of sources if you actually chose to read a full article. One such full story is attached, but here is the part you doubt is true:

Without the charges, however, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items


Seems pretty clear to me.

http://finance.yahoo.com/news/Southwest-Airlines-reports-4Q-apf-14132246.html

 

[bravodude]

Plus we didn't take the bath I expected on the hedges.

Gup

yo yo what up!

 

[Benjamin Dover]

Andy, Andy ??

 

[Andy Neill]

Andy, Andy ??

Yes. Yes. I maintain that when the dust settles LUV will record a surprise on their earnings of a negative $0.13 instead of a positive $0.03. OK?

I have great respect for SWA as an organization and regret that you took my posts as flame material. It's great that they have an operational profit. Good on 'em.

 

[bravodude]

Yes, but now the guy is at the door, he wants his money, and you gave him cash. It was all play money created by the Mark to Market accounting practice brought to you because of the $hitbags at Enron. You keep making it sound like it is a paper loss. They lost the money it took to set up the contract, which was considerable, and they are paying at least 50% more FIXED COST for gas then everybody else. It is causing REAL CASH to leave their account. And they are spending even more money to try to buy their way out of future contracts. SWA is a great company, and their fuel hedge program has been a huge asset to the company for many years. This was a perfect storm that has hurt them, make no mistake about that.

Actually if you would listen to the conference call before spreading lies you would have heard that we are paying 10-12 cents a gallon more not 50%.

 

[RedDogC130]

I still get my profit sharing so that is good.

 

[Andy Neill]

Source? How about common sense. The stock is currently up 16.23%. Does that sound like a company that just badly missed earning expectations?

If you are going to use price action as an indicator, tell me what Friday's 18.45% loss on higher volume than Thursday's meant. At $8.00 it is 4% below Wednesday's close.