Image Source: Colin Brown
By Brian Nelson, CFA
On January 10, Delta Air Lines (DAL) posted fourth quarter 2024 results that beat on both the top and bottom lines. Adjusted operating revenue increased 5.7% in the fourth quarter, and the firm leveraged the top line growth into 30.4% expansion in adjusted operating income. Its adjusted operating margin in the quarter hit 12% compared with 9.7% in the same period a year ago. Adjusted pre-tax income was 47% higher on a year over year basis, while its adjusted pre-tax margin reached 10.8% versus 7.8% in last year’s quarter. Adjusted net income increased 45.6%, while adjusted diluted earnings per share expanded to $1.85 in the quarter versus $1.74 consensus and $1.28 in last year’s period.
Management is excited about what 2025 may bring:
As we move into 2025, we expect strong demand for travel to continue, with consumers increasingly seeking the premium products and experiences that Delta provides. Our differentiated strategy and best-in-class operations, combined with demand strength and an increasingly constructive industry backdrop, position us to deliver the best financial year in Delta’s 100-year history, with pre-tax income greater than $6 billion, earnings per share greater than $7.35 and free cash flow of more than $4 billion.
Adjusted operating cash flow was $1.78 billion in the fourth quarter versus $499 million in the same period a year ago, while capital spending came in at $1.24 billion in the quarter versus $1.2 billion in last year’s period. Free cash flow was $544 million in the quarter. Delta benefited from lower fuel prices in the quarter, with the average fuel per gallon being $2.34 versus $3.00 in last year’s quarter, both measures on an adjusted basis. On a non-GAAP basis, the company’s 2025 earnings per share guidance represents 19% year-over-year growth. Delta’s 3-5 year targets are for 10% average earnings per share growth, free cash flow in the range of $3-$5 billion and gross leverage of 1x (its gross leverage was 2.6x at the end of the quarter).
The revenue environment remains solid for Delta. Management noted that demand accelerated during the quarter and that its revenue growth of 5.7% was ahead of guidance calling for 2%-4%. On the cost side, management noted that it “delivered the most profitable December quarter in (its) history.” The company expects “non-fuel unit cost growth in the low-single digits for the full year 2025 as efficiencies offset the impact of slower capacity growth and continued investments in (its) people and the customer experience.” Adjusted net debt was $18 billion at the end of the December quarter, a reduction of $3.6 billion from the end of 2023. Total cash and cash equivalents were $3.4 billion at the end of the December quarter.
ESG Matters
Delta’s 90+page ESG report is full of details. Management notes that safety is its No. 1 priority, but it goes beyond that. The firm treats its employees right and provides a nice profit-sharing program for employees and even “developed a program…to give every Delta employee access to a $1,000 emergency savings account.” Delta has a Chief Sustainability Officer, and the firm is targeting net-zero emissions by 2050. Reducing single-use plastic consumption during flights and improving the fuel efficiency of its fleet are other key goals. New planes will be 20%-30% more fuel efficient. Delta is also active in their communities and commits to contributing 1% of its profits to communities worldwide, “partnering with organizations like American Red Cross, Captain Planet, Junior Achievement and UNCF.”
Concluding Thoughts
We liked Delta’s fourth quarter results and outlook for 2025, but we’re not interested in adding any airline to the newsletter portfolios. Airline economics are notoriously difficult to forecast, and their operating results are heavily levered to volatile jet fuel prices. Swings in the economic environment can also have a large impact on performance given the operating leverage inherent to their business models. Delta is currently riding an upswing in demand, but we remain cautious on shares given the volatility innate to an airline’s business model. We remain on the sidelines.
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Tickerized for the top holdings in JETS.
Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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