Post Earnings Coverage as Delta Earnings Beats Estimates

LONDON, UK / ACCESSWIRE / October 14, 2016 / Active Wall St. announces its post-earnings coverage on the number 2 global airline by passenger traffic, Delta Air Lines, Inc. (NYSE: DAL). The company reported its earnings and revenue below the previous year and also announced that it will not expand its flight capacity. Register with us now for your free membership at: http://www.activewallst.com/register/.

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Earnings Reviewed

For the three months ended on September 30th, 2016, Delta Air Lines reported net income of $1.26 billion, or $1.69 per share, compared to $1.32 billion, or $1.65 per share, in the year-earlier period. Adjusted per share earnings came in at $1.70, ahead of analysts’ consensus of $1.65 per share. However, the company’s revenue fell 5.6% to $10.48 billion, which was below estimates of $10.53 billion.

Adjusted pre-tax income for Q3 2016 was $1.9 billion, a $278 million decrease from Q3 2015. The technology outage and subsequent operational recovery Delta experienced over four days in early August reduced pre-tax income for the quarter by an estimated $150 million. The company delivered solid operations with a 99% mainline completion factor and an on-time arrival rate of 84% for Q3 2016.

Delta’s operating revenue for Q3 2016 dropped 5.6%, or $624 million, of which $100 million was due to the outage and $70 million was from prior year’s Yen hedge gains. Passenger unit revenues declined 6.8%, including nearly 2 points of impact from the outage and Yen hedges, on a 1.5%increase in capacity.

Ed Bastian, Delta’s chief executive officer said:

“With our focus on building a more sustainable and durable business, we will be taking a cautious approach to 2017 by keeping our capacity in line with the December quarter’s 1% growth level.”

By Geography

On a geographical basis, Delta reported that during Q3 2016, Latin was the first region to have turned the corner with a unit revenue improvement of 1.5%, the first time a Latin entity has achieved positive unit revenue in 2.5 years. After 16 consecutive quarters of negative results, Brazil’s unit revenues improved 30% on y-o-y basis, as strengthening real drove more Brazil point-of-sale demand. Mexico’s business markets have also been a key driver on Latin America’s path to positive Revenue per Available Seat Mile (RASM), achieving the third consecutive quarter of positive unit revenues.

In the Pacific region, Delta reported saw positive RASM ex-hedge during the quarter for the first time since 2013. Japan was a notable bright spot with RASM ex-hedge of 4% year-over-year driven by a stronger yen. On the other hand, China continues to be challenged as industry capacity growth outpaced increases in demand.

For the Transatlantic segment, Q3 2016 unit revenues were down 9.7%, driven by overcapacity, particularly from LCCs and Middle East carriers, while terrorism concerns, sluggish economies, and the Brexit, all weighed on the demand side.

Balance Sheet

During Q3 2016, Delta’s adjusted fuel expense declined $348 million compared to the same period in 2015; 10% lower market fuel prices. Delta’s adjusted fuel price per gallon for the September quarter was $1.48, which includes $0.04 per gallon from losses at the Trainer Refinery. CASM-Ex3 including profit sharing, increased 0.1% for Q3 2016 compared to the prior year’s period, driven by strong operational performance and productivity savings realized during the quarter, in addition to lower profit sharing expense.

Delta generated $1.8 billion of adjusted operating cash flow and $1.1 billion of free cash flow during the reported quarter. The company used this strong cash generation to invest $680 million into the business for aircraft purchases and improvements, for facilities upgrades, and to support its maintenance part-out initiatives.

For Q3 2016, the airline returned $650 million to shareholders, which was comprised of $150 million of dividends and $500 million of share repurchases. Through the end of Q3 2016, Delta has returned $2.7 billion to its shareholders in 2016 through dividends and share repurchases. Adjusted net debt stood at $6.4 billion as of September 30th, 2016.

Outlook

Delta is expecting a slight decline in margins year-over-year, as savings from lower fuel prices and productivity initiatives will be fully offset by declines in unit revenues that the company continues to address through its capacity actions and revenue management initiatives. The projections for the December quarter do not include any estimates for the company’s potential agreement with its pilots. For Q4 2016, Delta expects PRASM to decline 3% to 5% year-over-year. As a result, the company’s management forecasts a Q4 operating margin of 14% to 16%; translating to a pre-tax margin of approximately 13% to 15%.

Stock Performance

On Thursday, October 13, 2016, Delta Air Lines’ shares were up 1.88%, finishing the day at $40.01 with volume of 24.27 million shares exchanging hands by the close of the trading session, which was higher than the 3-month average volume of 9.96 million shares. For the last month, the stock has gained 7.79%. The company’s shares are trading at a PE ratio of 6.51 and have a dividend yield of 2.02%.

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