Delta Air Lines (DAL) Q4 Earnings Beat, FY18 View Upped

Delta Air Lines Inc. (NYSE:DAL) kicked off the fourth quarter 2017 earnings season for the airline space on a bright note. The company’s earnings as well as revenues surpassed expectations.

The company’s fourth-quarter earnings (excluding 16 cents from non-recurring items) of 96 cents per share beat the Zacks Consensus Estimate of 88 cents. Moreover, the bottom line expanded 17.1% on a year-over-year basis. Results were aided by higher revenues.

Operating revenues came in at $10,245 million, surpassing the Zacks Consensus Estimate of $10,158.8 million. The top line increased 8.3% from the year-ago figure. Strong demand for air travel during the holiday season aided revenues.

During the quarter under review, passenger revenues, cargo revenues and others increased 6.6%, 14.4% and 17.9%, respectively, on a year-over-year basis. Average fuel price (adjusted) was up 20.9% to $1.93 per gallon.

Operating Statistics

Revenue passenger miles (a measure of air traffic) increased 2.4% on a year-over-year basis. Additionally, capacity or available seat miles expanded 2.3%. Load factor (percentage of seats filled by passengers) improved 10 basis points year over year to 85.2% as traffic growth outpaced capacity expansion in the quarter, leading to packed planes.

Passenger revenue per available seat mile (PRASM) was up 4.2% year over year. In fact, this was the third 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 4.1%. Total revenues per available seat miles (TRASM: excluding refinery sales) increased 4.4% (on a year-over-year basis) in the fourth quarter.

Operating Expenses

Total operating expenses, including special items, increased 7% year over year to $9,052 million. Non-fuel consolidated unit cost or cost per available seat mile (CASM:normalized), including profit sharing, rose 5.6%, mainly owing to continued investments by the carrier.

Liquidity

At the end of the fourth quarter, Delta had $1.81 billion in cash and cash equivalents and adjusted net debt of $8.8 billion. In the quarter, the company invested $850 million toward aircraft purchases, and upliftment of planes and facilities, among the other factors. It shelled out $450 million for buying a 10% stake in Air France-KLM (OTC:AFLYY) .

Operating cash flow and free cash flow in the quarter were $6.8 billion and $2 billion, respectively.

Dividend and Share Repurchase

Delta returned $541 million to its shareholders through dividends ($216 million) and share buybacks ($325 million) in the quarter under review. In 2017, it returned $2.4 billion to shareholders through the above shareholder friendly initiatives. In fact, the company’s efforts to return greater value to its investors are impressive.

Top- and Bottom-line Performance in 2017

In 2017, the company reported earnings (on an adjusted basis) of $4.93 per share, beating the Zacks Consensus Estimate of $4.86. The bottom line, however, decreased 7.3% from 2016 levels due to high costs. Revenues climbed 4% to $41.2 billion, outpacing the Zacks Consensus Estimate of $41.13 billion.

Strong Guidance

For the first quarter of 2018, the carrier expects operating margin in the range of 6% to 8%. Fuel price, including taxes and refinery impact, is expected between $2.05 and $2.10 per gallon in the same period. System capacity is anticipated to be up approximately 3% on a year-over-year basis.

The company expects total unit revenues (excluding refinery sales) to increase in the band of 2.5% to 4.5% (on a year-over-year basis) in the quarter. Also, non-fuel consolidated unit cost (normalized), including profit sharing, is expected to increase in the band of 2% to 4%.

Delta expects revenues in 2018 to increase between 4% and 6% on a year-over-year basis. The new tax law, which will reduce its corporate tax rate significantly, is expected to aid the company’s performance.

Consequently, Delta lifted its earnings per share guidance for 2018. The company now expects earnings per share in the range of $6.35 to $6.70 (previous outlook: $5.35 to $5.70). The Zacks Consensus Estimate for 2018 earnings is pegged at $5.62 per share.

The upbeat views and the fourth-quarter outperformance pleased investors. As a result, Delta stock gained in early trading.

Upcoming Airline Releases

Chicago-based United Continental Holdings (NYSE:UAL) is scheduled to release fourth quarter results on Jan 23. JetBlue Airways (NASDAQ:JBLU) , based in Long Island City, NY, is expected to release its fourth-quarter results on Jan 25. Dallas-based Southwest Airlines (NYSE:LUV) is scheduled to unveil its results on Jan 25.

Zacks Rank

Delta Air Lines currently 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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