Why Is Delta (DAL) Up 10% Since Last Earnings Report?

Zacks

A month has gone by since the last earnings report for Delta Air Lines (DAL Free Report) . Shares have added about 10% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat at Delta in Q3

Delta’s earnings (excluding 11 cents from non-recurring items) of $1.80 per share surpassed the Zacks Consensus Estimate by 6 cents. The bottom line also expanded on a year-over-year basis despite high fuel costs. Results were aided by higher revenues.

Operating revenues came in at $11,953 million, marginally missing the Zacks Consensus Estimate of $11,956.9 million. However, the top line increased 8% from the year-ago figure. Strong demand for air travel boosted revenues.

In the quarter under review, passenger revenues, cargo revenues and others increased 8.2%, 18.5% and 4.4%, respectively, on a year-over-year basis. Average fuel price (adjusted) increased 32.1% to $2.22 per gallon. Meanwhile, fuel bill (on an adjusted basis) rose 35% year over year.

Operating Statistics

Revenue passenger miles (a measure of air traffic) increased 3.8% on a year-over-year basis. Additionally, capacity or available seat miles expanded 3.9%. Load factor (percentage of seats filled by passengers) came in at 86.9%, flat year over year.

Passenger revenue per available seat mile (PRASM) was up 4.2% year over year. In addition, passenger mile yield grew 4.2%. Total revenues per available seat miles (TRASM: adjusted) also increased 4.3% (on a year-over-year basis) in the third quarter.

Operating Expenses

Total operating expenses, including special items, rose 12% year over year to $10,311 million. Adjusted cost per available seat mile (including profit sharing) was flat year over year.

Liquidity

At the end of the third quarter, Delta had $1,380 million in cash and cash equivalents, and $8,115 million long-term debt and capital leases. Operating cash flow and free cash flow in the quarter were $1.5 billion and $655 million, respectively.

Dividend and Share Repurchase

Delta returned $566 million to its shareholders through dividends ($241 million) and share buybacks ($325 million) in the quarter under review. The company’s board cleared a dividend hike to the tune of 15% earlier this year. The new quarterly dividend is 35 cents per share.

Guidance

For the fourth quarter of 2018, the carrier expects earnings per share to be between $1.10 and $1.30. The carrier anticipates pre-tax margin in the 9-11% band. The estimated fuel price, including taxes, settled hedges and refinery impact, is envisioned in the range of $2.47-$2.52 per gallon.

Total unit revenue, excluding refinery sales, is anticipated to increase in the 3-5% band. 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 forecasted in the range of 0% to -1% (year-over-year change).

For 2018, total revenues are expected to grow approximately 8%, the high end of the previously forecasted 7-8% range.

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 -6.3% due to these changes.

VGM Scores

At this time, Delta has an average Growth Score of C, a grade with the same score on the momentum front. 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 this revision 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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