Delta Beats, Earnings Brave Harsh Winter - Analyst Blog

Airline behemoth, Delta Air Lines Inc. DAL reported first-quarter 2014 adjusted earnings of 33 cents per share, surpassing the Zacks Consensus Estimate of 29 cents. The bottom line improved a whopping 230.0% from the year-ago adjusted profit of 10 cents buoyed by operational efficiency as well as reduced fuel and maintenance expenses.

Despite a harsh winter and shift of Easter into April, revenues increased 4.9% year over year to $8.92 billion in the reported quarter, and surpassed the Zacks Consensus Estimate of $8.89 billion. On a year-over-year basis, Passenger revenues grew 4.9% and Other revenues improved 8.5%. However, Cargo revenues dipped 8.8%.The impressive results have pushed the stock up by 5.15% in the pre-market trade on NYSE.

Delta cancelled 17,000 flights owing to harsh winter weather during January and February. The flight cancellations resulted in $90.0 million lower revenues and $55.0 million lower pre-tax income.

Operating Statistics

Airlines traffic, measured in billions of revenue passenger miles, went up 3.5% year over year to 44.6 billion. Capacity or available seat miles increased 1.7% from a year ago to 53.9 billion, while load factor (percentage of seats filled with passengers) moved up 150 basis points year over year to 82.7%. Passenger revenue per available seat mile (PRASM) or unit revenue rose 3.2% year over year, along with a 1.3% increase in yield.

Operating Expenses

Total operating expenses, crept up 0.2% year over year to $8,916.0 million, primarily due to rise in depreciation. Consolidated unit cost or cost per available seat mile CASM, excluding fuel cost, profit sharing and special items increased 0.2%.

Liquidity

As of Mar 31, 2014, the company had $3.7 billion in cash and short-term investments and net debt of $9.1 billion. The company has reduced its net debt by $7.9 billion since 2009.

The company generated operating cash flow of $951.0 million in the first quarter while capital expenditures were $570.0 million.

Dividend and Share Repurchase

During the quarter, the company returned $176 million to its shareholders. It paid a dividend of 6 cents aggregating $51 million and repurchased 4.0 million shares totaling $125 million.

Guidance

The company expects a strong demand environment, corporate revenue gains and synergies from the Delta-Virgin joint venture to lead to mid single-digit revenue growth for the second quarter.

Delta expects operating margin in the range of 14–16% and consolidated unit cost, excluding fuel and profit sharing, to increase 0–2.0% year over year in the second quarter.

The estimated fuel price, including taxes and hedges, is approximately $2.97 to $3.02 per gallon. System capacity is expected to increase 2–3%.

Upcoming Earning Releases

Of the other stocks in the sector, United Continental Holdings Inc. UAL Southwest Airlines Co. LUV and JetBlue Airways Corp. JBLU will release their second quarter results on Jan 24, 2014.

Our Take

We believe that the company will benefit from various strategic measures such as route launches, introduction of ancillary products, strong customer service and fleet revamping. However, a weak cargo business, competitive pressure and rise in non-fuel expenses remain near-term concerns.

Delta currently carries a Zacks Rank #2 (Buy).