Delta Tops Q1 Earnings by a Penny, Revenues Miss the Mark - Analyst Blog

Airline behemoth Delta Air Lines Inc. DAL reported mixed results in the first quarter of 2015 reporting higher-than-expected earnings but lower-than-expected revenues. The carrier reported first-quarter 2015 adjusted earnings of 45 cents per share, a penny higher than the Zacks Consensus Estimate of 44 cents. Earnings were 36.4% above the year-ago figure. Including special items, the carrier’s earnings came in at 90 cents per share.

 

Delta Air Lines Inc. - Earnings Surprise | FindTheCompany

Revenues increased 5% year over year to $9,388 million in the reported quarter, marginally short of the Zacks Consensus Estimate of $9,395 million. During the quarter, passenger revenues grew 3% and other revenues improved 22% from the prior-year period. Cargo revenues were flat on a year-over-year basis.

Delta believes that while a strong dollar will adversely impact its international operations, weak oil prices will continue to aid its bottom line, resulting in savings in excess of $2 billion in 2015. The average fuel price at Delta in the first quarter of 2015 was $2.93 per gallon, down 3%.

Operating Statistics

Airline traffic, measured in revenue passenger miles, went up 4% year over year to 46.2 billion. Capacity or available seat miles increased 5% to 56.6 billion, while load factor (percentage of seats filled with passengers) declined 100 basis points year over year to 81.7%. Passenger revenue per available seat mile (PRASM) or unit revenue declined 2% year over year.

Operating Expenses

Total operating expenses, including special items, declined 4% year over year to $7,990 million. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel cost, profit sharing and special items, fell 1.4%.

Liquidity

At the end of the first quarter of 2015, Delta had $2.12 billion in cash and short-term investments and adjusted debt of $7.4 billion. The company has reduced its net debt significantly since 2009.

Delta generated operating cash flow of $1.1 billion in the first quarter of 2015 while capital expenditures totaled $586 million.

Dividend and Share Repurchase

During the quarter, Delta returned $500 million to its shareholders through dividends and share buybacks. The carrier paid $75 million in cash dividends and bought back 9.3 million shares for $425 million. We are impressed by the company’s efforts to reward shareholders consistently through dividends and share buybacks.

Second-Quarter Guidance

For the second quarter of 2015, the carrier expects operating margin in the range of 16% to 18%.  The estimated fuel price, including taxes and hedges, is approximately $2.35 to $2.40 per gallon. System capacity is expected to increase approximately 3% and free cash flow is projected to be in excess of $1.5 billion.

The Way Ahead

Delta is benefiting considerably from persistent weak oil prices. With oil prices expected to remain soft for quite some time ahead, Delta should continue to witness an upside. This is because fuel costs account for a major chunk of an airline's operating expenses. Consequently, cheaper oil price should boost Delta’s bottom line, going forward.

Zacks Rank

Delta currently carries a Zacks Rank#3 (Hold). Better-ranked stocks in the airline space are JetBlue Airways Corp. JBLU, Southwest Airlines Co.  LUV and Hawaiian Holdings Inc. HA. All three stocks sport a Zacks Rank #2 (Buy).

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