Why Is Delta (DAL) Up 6.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Delta Air Lines (DAL). Shares have added about 6.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Delta due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat at Delta in Q4

Delta's earnings (excluding 19 cents from non-recurring items) of $1.30 per share surpassed the Zacks Consensus Estimate by 3 cents. Moreover, the bottom line increased on a year-over-year basis.

Operating revenues of $10,742 million, however, fell short of the Zacks Consensus Estimate of $10,828.7 million. Revenues increased 4.9% from the year-ago figure.

During the quarter, passenger revenues and cargo revenues improved 6.9% and 5.4%, respectively, both on a year-over-year basis. However, other revenues decreased 12.3%. The average fuel price (adjusted) in the fourth quarter was $2.42 per gallon, reflecting an increase of 25.3% on a year-over-year basis.


Operating Statistics

Revenue passenger miles (a measure of air traffic) increased 4% to 53.2 billion. Capacity or available seat miles expanded 4.1% to 62.5 billion. Load factor (percentage of seats filled by passengers) came in at 85.2%, flat year over year. Passenger revenue per available seat mile (PRASM) increased 2.7% year over year to 15.43 cents.

Total revenue per available seat mile (TRASM), on an adjusted basis, increased 3.2% year over year to 17.16 cents. Passenger mile yield improved 2.8% to 18.12 cents.

Operating Expenses

Total operating expenses, including special items, climbed 6% year over year to $9,652 million. Operating cost per available seat mile increased 2.3% to 15.44 cents. Non-fuel unit costs declined 0.5% to 10.74 cents.

Liquidity

Delta exited the quarter with $1,565 million in cash and cash equivalents. Delta generated free cash flow of $45 million and adjusted operating cash flow of $1.3 billion in the fourth quarter.

Adjusted debt at the end of 2018 stood at $16 billion. The company managed to reduce its net debt significantly from the 2009 levels.

Dividend and Share Repurchase

Delta returned $563 million to its shareholders through dividends ($238 million) and share buybacks ($325 million) in the quarter under review.  The company’s board cleared a dividend hike to the tune of 15% in 2018. The new quarterly dividend is 35 cents per share. The carrier returned $2.5 billion to shareholders in 2018 through dividends ($909 million) and share buybacks ($1.6 billion).

Annual Results

For full-year 2018, the carrier’s earnings (on an adjusted basis) climbed 19% to $5.65 per share. Revenues increased 8% to nearly $44 billion. The Zacks Consensus Estimate was of earnings of $5.58 per share on revenues of $44.44 billion.

Guidance

For the first quarter of 2019, the carrier expects earnings per share to be between 70 cents and 90 cents.

The carrier anticipates pre-tax margin in the 6.5-8.5% band. The estimated fuel price, including taxes, settled hedges and refinery impact, is envisioned in the range of $1.95-$2.05 per gallon.

TRASM, on an adjusted basis, is anticipated in the range of 0% to 2% (year-over-year change). System capacity is expected to be up approximately 4% on a year-over-year basis. Cost per available seat mile, excluding fuel and profit sharing, is anticipated to increase in the 1-2% band.  For full-year 2019, earnings per share is expected between $6 and $7.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.74% due to these changes.

VGM Scores

Currently, Delta has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Delta has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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