Delta Air Lines (DAL) is trading higher after the company reported strong results this morning. The company preannounced third quarter results last week so there wasn't much of a surprise there, but the numbers were strong nonetheless.
Adjusted pre-tax income for the September quarter was $1.6 billion, and adjusted earnings per share were $1.80, at the high end of guidance. Adjusted earnings per share were up 16%, driven by revenue momentum, tax reform benefits and a 4% lower share count, offset by a $30 million negative impact from Hurricane Florence.
Higher fuel prices have weighed on airline stocks but Delta said it recovered 85% of higher fuel costs, which were up 30% year-over-year, by passing them on to customers through higher fares.
Delta's adjusted operating revenue of $11.8 billion for the September quarter improved 8%. This quarterly revenue result marks a record for the company, driven by improvements across Delta's business, including a nearly 20% increase in premium product ticket revenues and double-digit percentage increases in cargo, loyalty and Maintenance, Repair and Overhaul revenue.
Total unit revenues excluding refinery sales (TRASM) increased 4.3% during the period driven by strong demand and improving yields.
Delta said demand has never been higher as both the corporate and leisure segments are strong.
Despite an expected 30% increase in fuel price, Delta expects pre-tax margins to stabilize in the December quarter driven by continued top-line growth and improving cost performance.
Delta guided for 8% revenue growth in the fourth quarter with unit revenue up 3-5%. Delta management remains bullish on the company's prospects amid continued strong demand.
The company is on pace for pretax profit over $5 billion for fourth straight year despite higher oil prices.
Delta said the company's top financial priority for 2019 is margin expansion and management guided for 3% capacity growth next year.
The company will provide more guidance for 2019 at its Investor Day on December 13.
Delta trades in-line with American (AAL) and United (UAL) at ~5x EV/EBITDA despite reporting more impressive financial metrics on the top and bottom line.