Delta’s Q4 Earnings Are Likely to See Double-Digit Growth



Fourth-quarter expectations

Delta Air Lines (DAL) is expected to report its fourth-quarter earnings results in the next few days, and the largest US air carrier by market cap has an impressive record of beating earnings estimates. In the trailing five quarters, the company has surpassed Wall Street’s consensus estimates every time, with an average positive surprise of 4.3%.

It looks probable that the airline will continue its trend of reporting better-than-expected bottom line results and witness strong double-digit quarterly earnings growth in the quarter. The company registered double-digit earnings growth in the third quarter.

For the fourth quarter, analysts expect adjusted EPS of $1.26 for Delta, implying a YoY (year-over-year) rise of 31.3%. Analysts expect increased revenue, cost-cutting initiatives, and lower fuel costs to drive the company’s fourth-quarter earnings higher.

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Management’s guidance

On January 3, Delta’s management updated its fourth-quarter earnings outlook, raising the lower end of its guidances for the company’s pretax margin and EPS. The company expects cost-control measures and a fall in fuel prices to lead to an expansion in its fourth-quarter pretax margin and a rise in its EPS.

Delta expects its fourth-quarter pretax margin to be 10%–11%, higher than its previous guidance range of 9%–11% and its level of 9.8% in the same quarter last year. Its fourth-quarter EPS are expected to be $1.25–$1.30, higher than its updated guidance range of $1.10–$1.30 in December. Its new EPS guidance range depicts YoY growth of 30%–35%.

The company’s fuel cost is expected to be $2.38–$2.43 per gallon, nearly $0.10 lower than its initial guidance range. The company noted that the wrong timing of fuel inventory purchases and maintenance at a refinery have partially offset the benefit of lower fuel prices. Without these issues, the cost per gallon would have fallen more.

Delta’s cost-control measures, fleet transformation, and One Delta initiatives are expected to lower its fourth-quarter nonfuel unit costs by 0.5% on a YoY basis. Earlier, Delta expected its nonfuel unit costs to be either flat or down 1% on a YoY basis.

Peers’ expectations

Major US air carriers (JETS) United Continental (UAL), American Airlines (AAL), and Southwest Airlines (LUV) are likely to witness YoY rises of 41.4%, 17.9%, and 37.7%, respectively, in their respective fourth-quarter EPS.


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