Delta (DAL 47.85, +0.10, +0.21%) reported strong fourth quarter results but
offered first quarter guidance that was below estimates this morning.
The company had preannounced results two weeks ago, so there weren't too many surprises from the fourth quarter.
From the company's release: "Adjusted pre-tax income for the December quarter 2018 was $1.2 billion driven by over $700 million of revenue growth, allowing the company to fully recapture the $508 million increase in adjusted fuel expense and produce an 11% adjusted pre-tax margin. Adjusted earnings per share increased by 42% year over year to $1.30."
For the full year, adjusted pre-tax income was over $5 bln for the fifth year in a row. The company overcame ~90% of the $2 bln increase in fuel expense. Adjusted earnings per share grew 19% to $5.65, helped by tax reform and $1.6 bln in share repurchases.
Two weeks ago, Delta raised fourth quarter EPS and pre-tax margin guidance but lowered its unit revenue forecast.
Fourth quarter unit revenue grew 3.2%, driven by healthy leisure and corporate demand, but came in toward the low end of the company’s original +3-5% forecast.
Management noted that gas prices peaked three months ago, so the company was not able to recapture all of the change. Also, the earliness of Thanksgiving resulted in some consumer fatigue during the extended holiday period.
Softer unit revenue trends stoked fears that lower gasoline prices will once again put pressure on fares as competition picks up among the airlines.
Delta guided first quarter EPS and unit revenue below estimates. Management noted that 0-2% unit revenue growth includes a 50 basis point headwind from Easter's shift into the second quarter, a 50 basis point headwind from a joint venture settlement, and 100 basis points from softness in Europe, foreign exchange, and the government shutdown.
On the call, management said that leisure and corporate demand remains healthy. January traffic and yields are seeing a return to pre-holiday levels.
So, the soft first quarter guidance was impacted by a number of one-time items, but the company remains optimistic regarding demand.
Delta reaffirmed its fiscal 2019 outlook for 4-6% top-line growth and EPS of $6.00-7.00.
Still, airlines stocks remain out of favor as revenue trends are in flux. United (UAL) will report this afternoon. American (AAL) will report next Thursday after warning about fourth quarter results last week.
With a $33 bln market capitalization, the largest U.S. airline trades at ~7x EPS and ~5x EV/EBITDA, in-line with peers.
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