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Delta (DAL) Stock Up on Q2 Earnings Beat, Upbeat View

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Delta Air Lines (DAL - Free Report) kick-started the second-quarter 2019 earnings season in the airline space on a solid note, delivering better-than-expected earnings and revenues. The company’s bottom line (excluding 14 cents from non-recurring items) of $2.35 per share outpaced the Zacks Consensus Estimate of $2.29 and increased 32.8% on a year-over-year basis. Higher revenues aided the quarterly results.

Operating revenues totaled $12,536 million, which surpassed the Zacks Consensus Estimate of $12,499 million. Moreover, it compared favorably with the year-ago number.

Moreover, the airline behemoth issued an encouraging projection. For the third quarter, Delta expects earnings (excluding special items) between $2.10 and $2.40 per share. The mid-point of the guided range ($2.25 per share) is above the Zacks Consensus Estimate of $2.16.

For 2019, Delta increased its earnings per share projection.  Delta now expects full-year earnings per share between $6.75 to $7.25 (earlier view: $6-$7 per share) The mid-point of the guided range ($7 per share) is above the Zacks Consensus Estimate of $6.93.

On an adjusted basis, total revenue per available seat mile (TRASM) in the second quarter increased 3.8% year over year to 17.42 cents driven by strong demand for air travel. TRASM improvement was more than the guidance of 3.5% increase projected earlier in July 2019.

Moreover, the company’s board of directors approved a 15% hike in quarterly dividend payout to $0.4025 per share. The increase marks the sixth consecutive dividend hike by the company. The new dividend will be paid on Aug 15, 2019 to shareholders of record on July 25.

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

 

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

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote

 

Other Details

During the quarter under review, passenger revenues, which accounted for 90.7% of the top line, improved 8%. Meanwhile, cargo revenues declined 17%. Moreover, other revenues decreased 2%. The average fuel price (adjusted) in the second quarter was $2.08 per gallon, reflecting a 4.4% decrease on a year-over-year basis.

Revenue passenger miles (a measure of air traffic) increased 6.3% to 63.17 billion. Capacity or available seat miles expanded 4.7% to 71.75 billion. Load factor (percentage of seats filled by passengers) improved 130 basis points to 88% as traffic growth lagged capacity expansion. Passenger revenue per available seat mile (PRASM) inched up 2.9% year over year to 15.84 cents. Passenger mile yield improved 1.4% to 18 cents.

Total operating expenses, including special items, climbed 3% year over year to $10,408 million. Operating cost per available seat mile decreased 1.5% to 14.51 cents. However, non-fuel unit costs increased 1.4% to 10.15 cents.

Liquidity, Dividend and Share Repurchase

Delta exited the quarter with $2,009 million in cash and cash equivalents. The company generated free cash flow of $1.8 billion and adjusted operating cash flow of $3.3 billion in the second quarter.

Long-term debt and finance leases stood at $7,710 million at the end of the reported quarter compared with $8,253 million at the end of 2018. The company has managed to reduce its net debt significantly from the 2009 levels.

Delta returned $497 million to its shareholders through dividends ($229 million) and share buybacks ($268 million) in the quarter under review. During the reported quarter, the company completed the repayment of the $1 billion short-term loan that was utilized to expedite the repurchase of shares in the first quarter of 2019.

3Q Guidance

For third-quarter 2019, the carrier anticipates pre-tax margin in the range of 14.5-16.5%. The estimated fuel price, including taxes, settled hedges and refinery impact, is expected in the band of $1.95-$2.15 per gallon. Total unit revenue, on an adjusted basis, is anticipated to increase 1.5-3.5% in the quarter.

System capacity is anticipated to be up approximately 4% on a year-over-year basis. Cost per available seat mile, excluding fuel and profit sharing, is projected to rise 1-2% in the third quarter.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting second-quarter 2019 earnings reports from key players like United Airlines Holdings (UAL - Free Report) , Alaska Air Group (ALK - Free Report) and Southwest Airlines (LUV - Free Report) . While United Airlines is scheduled to report on Jul 16, Alaska Air and Southwest Airlines will do so on Jul 25.

Zacks Rank

Delta carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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