Delta Air Lines (DAL) delivered a robust fourth-quarter earnings report, surpassing expectations on both the top and bottom lines. However, the stock plummeted over 5% in premarket trading on Friday due to disappointing guidance for the upcoming year.
In the quarter ended December, Delta posted earnings of $1.28 per share, excluding non-recurring items, which was $0.12 ahead of the estimated $1.16. The company's revenues also increased by 5.9% year-over-year, reaching $14.22 billion, surpassing the projected $13.55 billion.
Delta's strong performance continued into the full-year 2023, with record-breaking annual revenue and a record December quarter fueled by robust holiday demand. The airline generated a total revenue of $54.7 billion, a 20% increase from the previous year, and achieved a pre-tax income of $5.2 billion, which was double the figure from 2022.
Despite these achievements, Delta's guidance for the upcoming year fell short of market expectations. The airline expects earnings per share (EPS) to range between $6 and $7 for 2024. While this is in line with the company's long-term target, it falls short of the estimated $6.50 EPS.
The company's forecast for the first quarter also disappointed, with an EPS range of $0.25 to $0.50, which is lower than the expected $0.38. However, Delta anticipates a 3-6% year-over-year increase in revenue for the first quarter, which is estimated to be around $12.45 billion.
The primary concern for investors is the weakening growth outlook for 2024. Delta's projected EPS growth of 5-10% falls short of the 14% increase recorded in 2023. This slowdown can be attributed to factors such as softening domestic demand, rising costs, and the uncertain impact of the ongoing pilot pay deals.
Despite the negative sentiment in the airline sector, Delta still holds potential for outperformance. The company's strong international presence and greater resilience to cost pressures compared to discount airlines could provide a competitive edge in 2024.
Additionally, Delta is not affected by the temporary grounding of the Boeing 737 MAX 9 jets, which could further mitigate risks for the company. This aircraft accounts for around 20% of Alaska Airlines' fleet and 8% of United Airlines' fleet.
Overall, Delta Air Lines' strong fourth-quarter performance is overshadowed by the disappointing guidance for 2024. The airline sector is facing significant challenges, including rising costs, softening demand, and the impact of the ongoing pilot pay deals. These factors have contributed to a choppy ride on the path to an earnings recovery for the sector, according to Seaport Research.
Investors should monitor the situation closely as the airline sector navigates the turbulent environment ahead. The performance of Delta and its peers will be closely watched for signs of resilience and recovery.