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Delta (DAL) Q1 Earnings Top Estimates, Down Y/Y on High Costs

Zacks

Delta Air Lines Inc. DAL kicked off first-quarter 2018 earnings season for the airline space on a bright note. The company’s earnings as well as revenues surpassed the Zacks Consensus Estimate in the quarter.

The company’s first-quarter earnings (excluding 3 cents from non-recurring items) of 74 cents per share surpassed the Zacks Consensus Estimate by a penny. However, the bottom line contracted 3.9% on a year-over-year basis. High fuel costs led to the year-over-year decline. The winter storms, which led to multiple flight cancellations, have also hurt results in the reported quarter.

Operating revenues came in at $9,968 million, outpacing the Zacks Consensus Estimate of $9,881.2 million. The top line increased 8.9% from the year-ago figure. Strong demand for air travel boosted revenues.

In the quarter under review, passenger revenues, cargo revenues and others increased 7%, 23% and 32%, respectively, on a year-over-year basis. Average fuel price (adjusted) was up 18% to $2.01 per gallon.


Operating Statistics

Revenue passenger miles (a measure of air traffic) increased 2.8% on a year-over-year basis. Additionally, capacity or available seat miles expanded 2.7%. Load factor (percentage of seats filled by passengers) came in at 82.9%, flat year over year.

Passenger revenue per available seat mile (PRASM) was up 4.3% year over year. In fact, this was the fourth successive quarter in which this Atlanta, GA-based carrier recorded quarterly unit revenue growth since the fourth quarter of 2014. In addition, passenger mile yield grew 4.3%. Total revenues per available seat miles (TRASM:adjusted) also increased 5% (on a year-over-year basis) in the first quarter.

Operating Expenses

Total operating expenses, including special items, were up 13% year over year to $9,128 million. Cost per available seat mile (excluding fuel and profit sharing) rose 3.9%, owing to wage increases and other factors.

Liquidity

At the end of the first quarter, Delta had $1.45 billion in cash and cash equivalents and $6.36 billion long-term debt and capital leases. Operating cash flow and free cash flow in the quarter were $1.3 billion and $173 million, respectively.

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

Delta Air Lines, Inc. Price, Consensus and EPS Surprise | Delta Air Lines, Inc. Quote

Dividend and Share Repurchase

Delta returned $542 million to its shareholders through dividends ($217 million) and share buybacks ($325 million) in the quarter under review. Also, the company’s efforts to return greater value to its investors are impressive.

Guidance

For the second quarter of 2018, the carrier expects earnings per share between $1.80 and $2. It anticipates pre-tax margin in the range of 14-16% for the same quarter. Also, the estimated fuel price, including taxes and refinery impact, is expected in the range of $2.07-$2.12 per gallon. Robust top-line growth coupled with an improvement in the cost-related scenario is expected to mitigate the impact of rising fuel prices.

Total unit revenue, excluding refinery sales, is anticipated to increase in the 3-5% range in the second quarter. System capacity is expected to be up approximately 3-4% on a year-over-year basis. Cost per available seat mile, excluding fuel and profit sharing, is projected to increase in the band of 1-3% in the quarter.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting first-quarter earnings reports from key players like United Continental Holdings, Inc. UAL, Allegiant Travel Company ALGT and Spirit Airlines SAVE in the coming days. While United Continental is scheduled to report on Apr 17, Allegiant and Spirit Airlines are scheduled to do the same on Apr 25 and Apr 26, respectively.

Zacks Rank

Delta carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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