The stock market looked poised for a modest move higher on Thursday morning. Most investors seemed to draw minimal conclusions from inflation data released the previous day, and many still expect the Federal Reserve to raise interest rates when it meets early next month. Futures on major stock indexes were up as much as a third of a percent just before the market opened.
Earnings season is about to begin in earnest, with major banks kicking things off on Friday. However, investors always like to get a head start, and so many investors looked closely at a pair of industrial stocks that reported their latest financial results Thursday morning. Delta Air Lines (DAL 4.05%) and Fastenal (FAST 0.59%) shareholders didn't have the same reaction to the news from their respective companies, but both businesses showed signs of holding up better than some market participants had feared.
Image source: Delta Air Lines.
Delta aims to fly higher
Shares of Delta Air Lines were up 2.5% in premarket trading Thursday morning. The airline giant reported first-quarter financial results that didn't show a lot of strength, but its outlook for the key summer travel months appeared to be more upbeat.
Delta's numbers showed a strong rebound from weakness during the early part of the COVID-19 pandemic. Operating revenue for the first quarter came in at $11.8 billion, up 45% year over year and 14% higher than during the same quarter in 2019 before the pandemic began. Notably, Delta pointed out that business travel demand fully recovered compared to pre-pandemic levels, with small and midsize businesses leading the way for the airline. Larger corporate sales remained below 2019's figures, but the vast majority of companies it surveyed expect to maintain or boost their travel activity in the near future.
Delta also managed to turn things around on the bottom line, posting adjusted net income of $163 million and reversing a sizable year-earlier loss. However, the resulting adjusted earnings of $0.25 per share weren't quite as high as many shareholders had hoped, and the fact that Delta reported a sizable loss using generally accepted accounting principles raised concerns among some of those following the stock.
Nevertheless, the stock's move higher stemmed from the company's expectation for a record performance in the second quarter. The airline expects revenue to rise 15% to 17% year over year in the period, with adjusted earnings of $2 to $2.25 per share. Delta also sees full-year results remaining strong, with sales growth in the 15% to 20% range and earnings of between $5 and $6 per share. That was enough to stoke enthusiasm among shareholders even amid some near-term worries about costs.
Fastenal falls despite solid results
Moving the other direction, shares of Fastenal dropped 3% in the premarket session. Yet even with the decline, first-quarter financial results from the distributor of industrial and construction supplies showed solid gains from year-ago levels.
Fastenal's sales were up 9% year over year to $1.86 billion, with the company pointing to strong underlying demand in commodities and capital goods markets that overcame some weakness in the construction industry. Cost-cutting measures aimed at reducing operating and administrative expenses were sufficient to offset higher costs of sales, leading to a modest rise in profit margin figures. Net income of $295 million was 10% higher than in the previous year's first quarter, and earnings came in at $0.52 per share.
A look at Fastenal's segments shows differences inside its business even more clearly. Daily sales rates improved markedly in the manufacturing segment, building on strength from 2022's first quarter. However, Fastenal's non-residential construction business showed outright declines, as did the catch-all category that includes the industrial distribution specialist's work with public sector customers and the transportation and warehousing sector.
Fastenal has a reputation for being a reliable company that produces ample cash flow and rewards shareholders with solid dividends. Despite nervousness about the impact a potential recession could have on the business in the short run, Fastenal remains an attractive choice for investors looking for stability in tough times.
