Wednesday morning’s first-quarter earnings report from Delta Air Lines (NYSE:DAL) should be a good one. Granted, that’s not a stretch to say, given the company’s Q1 preview posted a week ago … an announcement that sent DAL stock up a solid 6% that day, and has tacked on additional gains in the meantime.
Source: via Delta
Still, an official confirming report could fan the bullish flames, pushing shares the rest of the way back to the upper edge of a long-standing bullish trading range.
That is, if the company’s pre-earnings guidance hasn’t raised the bar unreasonably high right in front of the release. For the quarter ending in March, analysts anticipate Delta Air Lines reporting earnings of 91 cents per share on revenue of $10.39 billion. Some observers are looking for a bottom-line figure of as much as 95 cents per share of DAL stock. The airline has topped its income estimates for six consecutive quarters.
Analysts’ expectations were adjusted upward just a few days ago, following the release of a first-quarter preview in which Delta estimated it would be reporting income of between 85 and 95 cents per share and revenue growth of around 7%. That would put the top line somewhere right around $10.67 billion.
That outlook explained “overall demand remains healthy, led by corporate volume,” which should drive a 2% increase in unit (per seat, per mile flown) revenue.
DAL Stock Rerouted to Higher Altitude
The optimistic guidance and similarly optimistic analyst estimates are distinctly different than the shape of things three months earlier.
Delta’s President Glen Hauenstein commented within the company’s Q4 report “Our March quarter adjusted unit revenue growth is expected to be flat to up two percent including impacts from the timing of Easter, increasing currency headwinds, and the ongoing government shutdown.”
Delta’s rivals weren’t immune to the same headwind. American Airlines Group (NASDAQ:AAL) shares fell 10% when the airline lowered its 2019 profit outlook from a range of $4.60 to $5 to a range of only $4.40 to $4.60.
Exacerbating the struggle was lower oil and jet fuel prices that prompted another margin-crimping fare ware.
American Airlines ended up topping fourth-quarter estimates though, as did United Continental Holdings (NASDAQ:UAL). Both rival airlines have also since served up 2019 guidance that suggests the shutdown as well as worries of a global economic slowdown are largely in the rearview mirror, having never fully materialized.
Delta underscored its optimistic outlook, reporting that March’s passenger traffic was up 5.3% in the month of March, while capacity improved 5.4%.
Looking Ahead for Delta Stock
Though not terribly relevant, directly, to Delta’s top and bottom lines, undoubtedly investors will be asking about the most visible factors that impact the air travel industry in general, and Delta in particular.
Chief among concerns surrounding the former is the 737 MAX jet, from aircraft manufacturer Boeing (NYSE:BA). Delta doesn’t use the plane, and has no plans to do so in the foreseeable future. Passengers who may fear booking a flight on a 737 MAX flown by a rival airline, however, may choose Delta instead.
Delta also made a point of mentioning its partnership with credit card company American Express Company (NYSE:AXP), which is expected to improve the first quarter’s unit revenue by one percentage point. American Express CEO Stephen Squeri explained “We will be working together across our card, merchant and travel businesses to expand the partnership and believe this continues to be a very attractive platform for growth that delivers substantial benefits to our customers, our partners and our shareholders.”
That deal has been extended through 2029.
The airline has also said its future growth will largely hinge on extracting more revenue by offering more higher-end, higher-margin services and seats. At the end of last year, Delta said it would be putting “less reliance” on standard cabin seats, with less than half of its 2018 revenue coming from the main cabin despite far more seats than first class or business class seats.
Those discussions will help push DAL stock around on Wednesday as much as the basic fiscal results will.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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