Delta Air Lines (DAL) stock is seeing a delay to takeoff into 2019.
Shares of the Atlanta-based air carrier, the second largest in America, have slid modestly in early morning trading Tuesday as the market deals with a mixed earnings release, stung by a worse-than-expected forecast for first quarter 2019.
Earnings for the three months ending in December came in at $1.30 per share, $0.03 ahead of the Street consensus, while Group revenues hit $10.74 billion, coming basically in line with estimates.
"2018 was a successful year for Delta with record operational reliability, increasing customer satisfaction, and solid financial results in the face of higher fuel costs," said CEO Ed Bastian. "As we move into 2019, we expect to drive double-digit earnings growth through higher revenues, maintaining a cost trajectory below inflation, and the modest benefit from lower fuel costs."
The company stated its intention to expand margins amid deep discounting in the industry and mitigate the risk from fuel costs that were a major headwind, leaping over $500 million from 2017.
However, Delta disappointed with its first-quarter 2019 guidance, touting earnings between $0.70 and $0.90 per share and an adjusted total revenue per available seat mile, or TRASM, growth rate of 2%. Both figures came up short of analyst expectations.
Analysts have reacted in kind, with many cutting price targets into an expectedly more difficult 2019 for the company and the airline industry overall.
"We think DAL lacks the earnings catalysts that we see in other airlines, while its valuation is now at a premium to American Airlines (AAL) and United Airlines (UAL) ," Bank of America analyst Andrew Didora wrote of Delta just before the release.
He downgraded the Delta to "Neutral" from "Buy" anticipating some difficult flying ahead, much of which seems to have been reflected in the print.
Eight analysts in total have cut price targets on Delta in just the past week, according to FactSet, with two issuing downgrades, after American Airlines highlighted turbulence ahead in the airline space last week.
Not least of the problems present in the space is the government shutdown that is reported to be costing Delta Air Lines $25 million per month as fewer government officials book travel and TSA checkpoints are bottlenecked by lower staff counts.
To be sure, Didora highlighted the overall stability of the company as these shorter-term headwinds abate.
"Our call is not based on a change in DAL's status as an industry leader with best in class free cash (10% free cash flow yield), earnings stability ($5B of pre-tax income for five straight years), and technology initiatives that drive a differentiated experience," he commented. "DAL has just a turn of net leverage, which is a positive at this point in the economic cycle, and we still consider DAL to be the airline that has most transformed itself this cycle. We just see near-term headwinds given a slowdown in our demand indicators."
FactSet consensus remains a "Buy" even as the shares encounter pressure and estimates lose some altitude.
Management will attempt to highlight the positives in the report and allow the stock room to take off during a conference call with analysts at 10:00 a.m. on Tuesday. Tune in here.
