How Should You Play DAL Stock Post Q1 Earnings and Revenue Beat?

On April 9, Delta Air Lines DAL reported better-than-expected revenues and earnings per share for the first quarter of 2025 despite the tariff-induced uncertainty. Given the current uncertain scenario, DAL decided against reaffirming its 2025 financial guidance. DAL stock has gained 9.6% since the earnings release. Apart from the better-than-expected results, the upside was aided by the 90-day pause on most reciprocal tariffs.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Highlights of Q1 Earnings

Delta reported first-quarter 2025 earnings (excluding 9 cents from non-recurring items) of 46 cents per share, which surpassed the Zacks Consensus Estimate of 40 cents. Earnings increased 2.2% on a year-over-year basis due to low fuel costs. With oil prices moving south, the average fuel price per gallon (adjusted) fell 11% to $2.45 in the quarter.

Delta's quarterly earnings were within the range provided last month when the airline trimmed its earnings per share and revenue outlook. Management cited economic uncertainties and the resultant reduction in consumer and corporate confidence, which hurt domestic air travel demand, as reasons for trimming the outlook.

Revenues in the March-end quarter were $14.04 billion, surpassing the Zacks Consensus Estimate of $13.81 billion and increasing 2.1% on a year-over-year basis.  The tariff-induced turbulence resulted in domestic revenues being weak, primarily due to softness in the main cabin whose revenues declined 1.2%. Domestic passenger revenues inched up merely 1% year over year. The marginal increase was attributable to the tariff-induced slowdown in domestic air travel demand.

International revenues were up 7% year over year, owing to the buoyant demand for long-haul travel. Transatlantic revenues grew 5%, driven by the strength of premium products and network optimization. Pacific revenues were also strong..Delta is the first S&P 500 member in the Zacks Transportation- Airline industry to report first-quarter 2025 results. Other airline S&P 500 members like United Airlines UAL and Southwest Airlines LUV are scheduled to report first-quarter 2025 results on April 15 and April 24, respectively.

The earnings beat in the first quarter was DAL’s second in the last four quarters. The airline reported lower-than-expected earnings per share in the other two quarters, the average beat being 4%.

Delta Air Lines Price and EPS Surprise

Delta Air Lines, Inc. price-eps-surprise | Delta Air Lines, Inc. Quote

DAL’s Projections Highlight Uncertainty

Given the lack of visibility, DAL withdrew its full-year 2025 outlook. Management stated that it would provide an update later in the year as visibility improves. 

To combat the weak demand scenario, DAL is reducing costs by trimming capacity. DAL now expects planned capacity to be flat in the second half of 2025 compared with 3-4% year-over-year growth expected previously, with domestic main cabin seats on the decline. It won't come as a surprise if other airlines, like United Airlines and American Airlines, follow the same path of cutting capacity to protect margins in this turbulent scenario.

Given this chaotic situation, it was not much of a surprise that DAL expects adjusted revenues for the June quarter to be down 2% to up 2% from the prior year. For the second quarter, the airline expects an operating margin in the 11-14% band and earnings per share in the $1.7-$2.3 range. 

Earnings estimates for 2025 and 2026 have been revised 14.7% and 11.2% downward to $5.85 and $7.12, respectively, in the past seven days, showing that analysts are pessimistic about DAL’s earnings growth potential in this uncertain scenario. 

DAL’s Tepid Price Performance

Due to the slowdown in domestic air travel demand, airline stocks have performed dismally lately. DAL and other key players in the industry, such as United Airlines and American Airlines, declined significantly in the year-to-date period, underperforming the industry. Shares of Delta Air Lines, United Airlines and American Airlines have plunged 38%, 35.4% and 45.5%, respectively.

YTD Price Comparison

Some Positives for DAL

The southward movement of oil price bodes well for the bottom-line growth of Delta. This is because fuel expenses are a significant input cost for the aviation space. Crude oil is struggling in 2025, with prices sliding to multi-month lows. Tariff concerns, weakening consumer confidence, and production increase by OPEC+ have all resulted in this downward pressure. Consequently, expenses on aircraft fuel and related taxes declined 7% year over year in the first quarter of 2025, aiding DAL’s bottom line.

Highlighting its shareholder-friendly stance, DAL’s management resumed paying quarterly dividends in 2023 of 10 cents per share after a COVID-induced hiatus. In June 2024, management announced a 50% hike in its quarterly dividend payout. This was the first dividend increase by DAL since the resumption of its quarterly dividend payments last year. DAL’s dividend yield is currently pegged at 1.36%. In this scenario of uncertainty, DAL’s dividend-paying capacity is a positive for income-seeking investors. This highlights confidence in its cash flow and prospects.

From a valuation perspective, DAL is trading at a discount compared with the industrial levels, going by the forward 12-month price-to-sales ratio. The company has a Value Score of A.

Not an Opportune Time to Buy DAL Stock

There is no doubt that DAL stock is attractively valued. The company’s shareholder-friendly initiatives and low fuel costs add to its appeal. However, headwinds like the tariff-induced uncertainty due to which Delta has withdrawn its full-year 2025 outlook, in addition to high labor costs (expenses on salaries and related costs were up 11% in 2024), cannot be ignored. Declining earnings estimates also do not help matters. 

Given the current turbulence, we can safely say that despite the earnings and revenue beat by DAL in the March quarter, it is not at all advisable to buy this Zacks Rank #3 (Hold) stock. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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