Delta Air Lines (Atlanta) today reported financial results for the fourth quarter. Key points include:

Delta’s pre-tax income for the December 2014 quarter was $1.0 billion, excluding special items1, an increase of $474 million over the December 2013 quarter on a similar basis. Delta’s net income for the December 2014 quarter was $649 million, or $0.78 per diluted share, and its operating margin was 12.6 percent, excluding special items.

For the full year 2014, Delta’s pre-tax income, excluding special items, was $4.5 billion, a $1.9 billion increase over 2013. Delta’s net income for the year was $2.8 billion with an operating margin of 13.1 percent, excluding special items.

On a GAAP basis including special items, Delta’s December quarter pre-tax loss was $1.1 billion, operating margin was -8.6 percent and net loss was $712 million, or $0.86 per share. On a GAAP basis including special items, Delta’s 2014 pre-tax income was $1.1 billion, operating margin was 5.5 percent and net income was $659 million.

2014 results include $1.1 billion in profit sharing expense, including $262 million in the December quarter, recognizing Delta employees’ contributions toward meeting the company’s financial goals.
The company’s strong cash generation allowed it to accelerate its capital deployment plans by reducing its adjusted net debt2 to $7.3 billion, contributing an incremental $250 million above required funding to its defined benefit pension plans, and returning $1.35 billion to shareholders through a combination of $251 million of dividends and $1.1 billion of share repurchases in 2014.

“Our 2014 performance – an industry-leading operation, superior customer service, and a 70 percent increase in profits – shows that Delta is focused on delivering growing value for its employees, customers and investors,” said Richard Anderson, Delta’s chief executive officer. “As we begin 2015, we have a significant opportunity from lower fuel prices, which will drive more than $2 billion in fuel savings over 2014. Through our capacity discipline, pricing our product to demand, and the fuel savings, we expect to drive double-digit earnings growth, along with increased free cash flow and a higher return on invested capital in the upcoming year.”

Special Items

Delta recorded a $1.4 billion special items charge, net of taxes, in the December 2014 quarter, including:

a $1.2 billion charge for mark-to-market adjustments on fuel hedges settling in future periods;
a $75 million charge for mark-to-market adjustments on hedges owned by Virgin Atlantic;
a $74 million charge for fleet, facilities, and other items, associated with Delta’s domestic fleet restructuring initiative as well as the write-down of certain facilities in Concourse C of Detroit Airport; and
a $29 million gain related to an insurance settlement.
Delta recorded a net $7.9 billion special items gain in the December 2013 quarter, including:

an $8.0 billion non-cash gain associated with the reversal of Delta’s tax valuation allowance;
a $92 million mark-to-market gain on fuel hedges; and
a $160 million charge for facilities, fleet and other, including charges associated with Delta’s domestic fleet restructuring.

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Financial comment from James Chen, Chief Technical Strategist at www.cityindex.com.sg

“Delta Airlines Inc. (DAL) announced fourth quarter earnings on Tuesday before the market open. The airline reported better-than-expected non-GAAP earnings of $0.78 per share, helped by falling fuel prices. This beat analysts’ consensus earnings estimate of $0.77.

Total operating revenue reached $9.65 billion, slightly topping the $9.58 consensus estimate.

DAL’s stock price rose well above $47.00 in pre-market trading after having closed on Friday at 45.84.

Overall, DAL continues to trade within a long-term bullish trend. 2014 was a dramatically bullish year for the stock, as price rose by 84% from its 2014 opening price of $27.26 up to the record high of $50.16 that was reached on the very last day of 2014. This was despite a major price correction that occurred throughout September and the first half of October.

The new year has thus far shown somewhat of a different picture. From the very beginning of 2015, DAL has declined consistently from its 2014 high in a substantial pullback move.

Prior to Tuesday’s earnings report, price action had been approaching key support around the $44.00 price level, slightly under the 50-day moving average. The positive earnings report, however, has prompted a significant rebound from that level, with a clear upside resistance target around the $50.00 resistance area once again. With a continued bullish bias, especially after Tuesday’s earnings beat, the uptrend for DAL should be poised to continue its march up towards its $55.00 price objective.”

Read more on James’ page at http://www.cityindex.com.sg/market-talk/analysts/james-chen/

Copyright Photo: Bruce Drum/AirlinersGallery.com. Boeing 737-832 N374DA (msn 29622) approaches the runway at Las Vegas McCarran International Airport.

Delta Air Lines aircraft slide show (current livery):