Shares of Delta Air Lines (NYSE: DAL – $53.19) are climbing about 3% after the Atlanta-based air carrier beat first-quarter profit and sales expectations, despite a somewhat downbeat revenue growth outlook for the year. Excluding special items, adjusted earnings per share came in at $0.74, a penny above consensus estimates. Adjusted operating expenses for the quarter increased $817 million, driven by employee wages and profit sharing, higher depreciation and increased fuel costs of $317 million; 20% higher relative to the March quarter 2017. Total revenue increased 9.5% to $9.97 billion, also beating Street views, as passenger and cargo revenue rose above expectations. The carrier’s load factor was 82.9%, flat with a year ago and just shy of estimates of 83.0%. For the second quarter, Delta expects earnings of $1.80 to $2.00/share, a little less that what analysts had hoped. “With our solid pipeline of commercial initiatives, delivered with industry-leading Delta service, we expect to maintain this momentum and deliver total revenue growth of 4 to 6 percent for the full year,” said President Glen Hauenstein.
Increasing fuel costs will continue to provide headwinds for Delta. However, recent price weakness has created a good long-term buying opportunity. The shares have suffered from news that United would be increasing capacity, fueling speculation that a price war may be looming. Based on Delta’s disciplined approach to capacity expansion in the past, I think concerns are largely priced into the shares at current levels and positions in aggressive accounts can be held.