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Delta Air Lines’ 1Q18 Earnings Beat Estimates

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Delta Air Lines’ 1Q18 earnings

Delta Air Lines (DAL) announced its 1Q18 earnings on April 12, 2018. It reported adjusted EPS (earnings per share) of $0.74, a rise of 4.2% on a YoY (year-over-year) basis. It beat analysts’ estimate of $0.73. 

In 1Q17, DAL reported adjusted EPS of $0.71. Its adjusted EPS excluded mark-to-market adjustments and settlements. On a GAAP (generally accepted accounting principles) basis, DAL reported diluted EPS of $0.77.

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Delta Air Lines’ earnings were adversely impacted by a rise in its operating expenses led by higher fuel expenses, an increase in salaries, and an increase in depreciation expenses. DAL’s fuel expenses stood at $2.01 per gallon during the quarter. With its larger fleet, DAL’s fuel expenses rose 25% YoY. Similarly, wages and depreciation expenses rose 8% and 14%, respectively. Severe winter weather also had an adverse impact of $44 million on DAL’s earnings.

DAL’s EPS were boosted by higher revenue and a lower tax rate, which fell from 34% to 23%. During the quarter, the company repurchased ~5 million outstanding shares for $325 million. At the end of 1Q18, DAL had 706 million outstanding shares compared to 731 million in 1Q17.

Stock price reaction and guidance

Investors were impressed with DAL’s earnings. DAL stock reacted positively and rose 2.9%, closing at $52.98 on April 12. On the day, peers American Airlines (AAL), Southwest Airlines (LUV), and JetBlue Airways (JBLU) rose 2.6%, 2.7%, and 1.2%, respectively.

For 2Q18, DAL expects its EPS to be in the range of $1.80–$2.00 driven by growth in its top line, lower taxes, and continued share repurchases. However, its fuel expenses are expected to rise and could be in the range of $2.07–$2.12 per gallon.

Investors can indirectly hold DAL by investing in the PowerShares Dynamic Leisure and Entertainment ETF (PEJ), which has invested 5.1% of its portfolio in Delta Air Lines as of April 12.

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