Delta Air Lines (DAL +1.7%) is trading modestly higher after the company reported strong results this morning.
Delta preannounced upside second quarter results last week. A more detailed report revealed strong financial metrics. Second quarter adjusted earnings grew 32%, operating revenue grew 9%, operating margins expanded 230 basis points, and free cash flow increased 27% to $1.8 bln.
Revenue of $12.5 bln was a record for the second quarter, driven by a 10% increase in premium product ticket revenue and double-digit percentage increases in loyalty and third-party maintenance revenue.
Delta continues to outperform capacity growth and peers on the top line. Management noted that pricing power following industry consolidation, premium options, loyalty, a shift to services and a secular shift toward travel and experiences, spurred by technology, were all driving unit revenue outperformance. As a result, Delta is a growth business.
On CNBC this morning, CEO Ed Bastian downplayed the marginal-to-modest benefit to unit revenue from industry supply pressures caused by the grounding of the 737 MAX.
On the call with analysts, he acknowledged that the 737 MAX grounding has had a dramatic impact on the industry. The reintroduction of the plane, likely sometime next year, seems likely to turn the current unit revenue tailwind into a headwind.
The nation's most valuable airline guided third quarter EPS toward the high end of expectations and unit revenue guidance in-line with expectations this morning.
Delta raised fiscal 2019 EPS to $6.75-7.25 from $6.00-7.00, in line with expectations. The company also raises revenue guidance to 6-7% from 4-6% while raising its dividend 15%.
Despite trading within 1% of its all-time highs this morning, Delta's stock remains relatively cheap, in line with peers. At ~6x EV/EBITDA, the airline industry continues to trade at a notable discount to other industries in the industrial sector.
Delta management continues to execute and display operational momentum, which they hope will lead to multiple expansion for the stock.