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Delta Airlines Gains on Upbeat Q1 Earnings and Strong Outlook

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Delta beats expectations

Delta Airlines (DAL) stock was up 3% in premarket trading on April 10 after the company released better-than-expected earnings results for the first quarter of 2019. The company’s first-quarter adjusted EPS of $0.96 surpassed Wall Street analysts’ consensus estimate of $0.90 and marked its seventh consecutive quarter of positive earnings surprises.

Delta’s quarterly earnings also came in above the high end of its guidance range of $0.85–$0.95 and registered a whopping ~28% YoY (year-over-year) rise. Higher revenue, cost-cutting initiatives, and benefits from the early renewal of its credit card agreement with American Express (AXP) mainly drove the company’s first-quarter earnings higher.

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In the first quarter, Delta reported adjusted revenue of $10.5 billion, slightly higher than analysts’ consensus expectation of $10.4 billion. On a YoY basis, its revenue rose 7.5%, higher than its recently updated guidance of 7%. Higher unit revenue and double-digit sales growth in its premium products and non-ticket sources mainly drove the company’s first-quarter revenue.

Delta’s unit revenue for the quarter rose 2.4% primarily due to strong corporate demand and a benefit of approximately one point from its American Express agreement. The YoY growth in this key revenue metric was higher than its recently updated guidance of 2%.

Delta’s ex-fuel cost per available seat mile fell 0.2% mainly as a result of its fleet transformation, cost-control measures, and One Delta initiative. Its fuel cost per gallon of $2.05 remained within its management’s guidance range of $2.03–$2.08.

The company’s pretax margin expanded 150 basis points to 7.9% in the quarter from 6.4% in the previous year’s quarter mainly driven by higher revenues and lower costs. In an investor update on April 2, Delta revealed that its cost-control initiatives and higher completion factor had led to expansions in its first-quarter pretax margin and EPS.

During the quarter, the company generated $2 billion worth of operating cash flow and $760 million worth of free cash flow. Delta returned ~$1.6 billion to its shareholders in the form of dividends and share repurchases in the quarter.

Peers gained on upbeat performance

The shares of most US air carriers (IYT) were also up in premarket trading today after Delta Airlines reported strong first-quarter earnings results. Southwest Airlines (LUV), American Airlines (AAL), and United Airlines (UAL) were all up over 1% in early trading today.

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