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Delta Air Lines (DAL) Q4 Earnings in Line, Revenues Beat

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Delta Air Lines Inc. (DAL - Free Report) , which kick-started the fourth-quarter earnings season in the airline space, delivered a mixed performance. While the company’s earnings were in line with estimates, it posted better-than-expected revenues in the quarter.

The Atlanta, GA-based carrier’s fourth-quarter earnings (excluding special items) of 82 cents per share met the Zacks Consensus Estimate. The bottom line, however, declined over 30% on a year-over-year basis.

Operating revenues of $9,458 million beat the Zacks Consensus Estimate by 1.1%. Revenues declined marginally from the year-ago figure.

During the quarter, passenger revenues and cargo revenues declined 1.9% and 9.8%, respectively, both on a year-over-year basis. Other revenues increased 10.6%. The average fuel price (adjusted) in the fourth quarter was $1.60 per gallon.

Operating Statistics

Revenue passenger miles (a measure of air traffic) increased marginally to 50 billion. Capacity or available seat miles inched up 0.9% to 58.7 billion. Load factor (percentage of seats filled by passengers) declined 10 basis points year over year to 85.1% as traffic growth was outpaced by capacity expansion in the quarter. Passenger revenue per available seat mile (PRASM) dipped 2.7% year over year to 13.58 cents. Passenger mile yield declined 2.7% to 15.95 cents.

Operating Expenses

Total operating expenses, including special items, climbed 8% year over year to $8,438 million. Consolidated unit cost or cost per available seat mile (CASM), including profit sharing, increased 10.6%, mainly due to the agreement with pilots, which was ratified in December.

Liquidity

At the end of the fourth quarter, Delta had $2.76 billion in cash and cash equivalents and adjusted net debt of $6.1 billion. The company managed to reduce its net debt significantly from the 2009 levels. Delta generated free cash flow of $640 million and adjusted operating cash flow of $1.2 billion in the fourth quarter.

Dividend and Share Repurchase

Delta returned $449 million to its shareholders through dividends ($149 million) and share buybacks ($300 million) in the quarter under review. We are impressed with the company’s efforts to return greater value to its investors. In May 2016, the company raised its quarterly cash dividend to over 20 cents per share or 81 cents per share annualized.

This represents an increase of 50% over the previous quarterly payout of 13.5 cents per share or 54 cents per share annualized. The carrier has returned $3.1 billion to shareholders in 2016.

Annual Results

For full-year 2016, the carrier’s earnings (on an adjusted basis) climbed 15.4% to $5.32 per share. Revenues declined 3% to $39.64 billion. The Zacks Consensus Estimate was of earnings of $5.32 per share on revenues of $39.6 billion.

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

 

Delta Air Lines, Inc. Price, Consensus and EPS Surprise | Delta Air Lines, Inc. Quote

First-Quarter 2017 Guidance

For the first quarter of 2017, the carrier expects operating margin in the range of 11% to 13%. The estimated fuel price, including taxes and refinery impact, is expected in the range of $1.68 to $1.73 per gallon for the first quarter. System capacity is expected to be in a range of flat to a decline of 1%, on a year-over-year basis.  The company expects unit revenues in the range of  flat to 2% increase in the first quarter.

We note that Delta is not the only company to have come out with a bullish unit revenue guidance. Its peers like United Continental Holdings (UAL - Free Report) and American Airlines Group (AAL - Free Report) are also bullish on the metric as they strive to return to unit revenue growth.

Zacks Rank & a Key Pick

Currently, Delta has a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is Copa Holdings (CPA - Free Report) . Copa Holdings sports a Zacks Rank # 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

We note that the Zacks Consensus Estimate for fourth-quarter 2016 for Copa Holdings has climbed 2 cents to $1.27 per share over the last seven days.

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