Delta’s stock surged after 4th Quarter earnings released

Delta Air Lines Inc.‘s stock shot up 7.26 percent after the release of its fourth-quarter report on Tuesday morning, despite its net income’s swinging down to a loss of $712 million dollars in the December quarter, or 86 cents loss per diluted share, from the year-ago earnings of $9.89 per diluted share.

The adjusted non-GAAP net income, however, was $649 million, or 78 cents per diluted share, beating the consensus forecast of 75 cents, according to Zacks Investment Research.

The “mark-to-market adjustments for fuel hedges” accounted for $1.2 billion of the $1.4 billion worth of “special items” that Delta excluded in the non-GAAP data.

Delta’s net income excluding special items was $649 million for the quarter ended on Dec.31, marking a 16.3 percent increase from the year-earlier period income of $558 million.

The company’s year-ago fourth quarter earning was largely boosted by a net $7.9 billion worth of “special items gain,” including a $8.0 billion non-cash associated with the reversal of Delta’s tax valuation allowance.

“Delta’s strong operating cash flow, combined with our disciplined capital investments, resulted in $3.7 billion in free cash flow in 2014,” said Paul Jacobson, executive vice president and chief financial officer of Delta, in a press release.

Jacobson said Delta allocated the free cash flow to reducing net debt levels by $2.1 billion to $7.3 billion, funding excess contributions, and returning $1.35 billion to owners through dividends and share repurchases.

Delta’s Chief Executive Officer Richard Anderson said in the conference call that the company’s top priority would continue to be “paying down debt.”

Delta Air Lines Inc. stock, January 20

Delta's stock price rose more than 7 percent after the release of its December quarter earnings. (Bloomberg)
Delta’s stock price rose more than 7 percent after the release of its December quarter earnings. (Bloomberg)

“The biggest debate in the airline industry right now is how much fuel savings companies can hold on to,” said Stifel Financial Corp. analyst Joseph Denardi.

“There’s a tremendous opportunity in front of us from lower fuel prices,” said Anderson during the conference call. “At current fuel prices we expect to capture over $2 billion in fuel savings benefit in 2015 net of our hedges,” he added.

“We expect a net year-over-year fuel price benefit of $500 million in the March quarter and will work throughout 2015 to maximize the benefit of fuel savings to our bottom line,” said Paul Jacobson, Delta’s chief financial officer.

“From Delta’s 2015 first-quarter pricing for fares, the outlook for its stock is pretty great,” said Denardi, who raised the price target for Delta to $65 from $60 after the release of the earnings.

Delta’s stock closed at $49.17 on Tuesday, up $3.33 from the previous day.