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Can Delta's (DAL) Q3 Earnings Beat Despite Outage Issue?


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Delta Air Lines, Inc. (DAL - Analyst Report) is scheduled to report third-quarter 2016 results on Oct 13, before the market opens. We note that Delta will be the first company from the airline sector to report earnings this season.

This Atlanta, GA-based carrier reported better-than-expected earnings in the second quarter of 2016. In fact, the carrier outpaced earnings estimates in three of the last four quarters. The average earnings beat is 1.69%. It remains to be seen how the company performs this quarter.

Factors at Play

Delta is one of the major U.S. airlines to have received approval from the U.S. Department of Transportation (DoT) to start flight services to Cuba. This is a huge positive of the company and is expected to boost its top line. Delta also posted growth in traffic figures for Sep 2016. Moreover, we are impressed with its efforts to reward shareholders.

Delta also faces intense competition from peers like American Airlines Group Inc. (AAL - Analyst Report) and United Continental Holdings Inc. (UAL - Analyst Report) . However, the main concern for investors this quarter will be the power outage issue suffered by Delta in August this year. The outage issue had disrupted the company’s operations and resulted in several flight cancellations and delays. Per the company’s third-quarter guidance, earnings will be adversely impacted by the outage issue.

Delta expects operating margin to be in the range of 18%–19% in the third quarter, including a 1.5 points impact due to the outage issue. PRASM too is expected to be adversely impacted by 1 point and decline around 7% for the third quarter.

DELTA AIR LINES Price and EPS Surprise



Earnings Whispers

Our proven model does not conclusively show that Delta will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP:  The Earnings ESP for Delta is -1.24%%. This is because the Most Accurate estimate stands at 1.60 while the Zacks Consensus Estimate is pegged at $1.62.

Zacks Rank:The carrier carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, our surprise prediction is complicated by the company’s negative Earnings ESP.You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, we caution against Sell-rated stocks (Zacks Rank #4 and 5) going into an earnings announcement, especially if the company has seen negative estimate revisions.

A Stock That Warrants a Look

While it remains to be seen as to how Delta performs this quarter, there is an airlines stock that you may want to consider, as our model shows that it has the right combination for an earnings beat this quarter:

JetBlue Airways Corp. (JBLU - Analyst Report) has a Zacks Rank #2 and an Earnings ESP of +1.70%. The company is expected to report third-quarter results on Oct 25.

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