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Delta Air Lines (DAL) Beats on Q3 Earnings, Misses Sales

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Delta Air Lines Inc. (DAL - Free Report) kick started the third-quarter earnings season in the airline space. The airline behemoth displayed mixed performance with better-than-expected earnings but weaker-than-expected revenues in the quarter. The Atlanta, GA-based carrier’s third-quarter earnings (excluding special items) of $1.70 per share beat the Zacks Consensus Estimate by 5 cents. The bottom line, however, declined 2.3% on a year-over-year basis.

Operating revenues came in at $10,483 million and missed the Zacks Consensus Estimate of $10,595 million. Revenues declined 6% from the year-ago figure, mainly due to the power outage in August.

During the quarter, passenger revenues, cargo revenues and other revenues declined 5.5%, 14.8% and 5.4%, respectively, all on a year-over-year basis. The average fuel price in the third quarter was $1.48 per gallon, down 17.5% year over year.

Operating Statistics

Revenue passenger miles (a measure of air traffic) declined marginally to 58.97 billion. Capacity or available seat miles inched up 1.5% to 69 billion. Load factor (percentage of seats filled by passengers) declined 140 basis points year over year to 85.4% as traffic contracted while capacity expanded in the quarter. Passenger revenue per available seat mile (PRASM) declined 6.8% year over year to 13.14 cents mainly due to the power outage. Passenger mile yield declined 5.3% to 15.38 cents.

Operating Expenses

Total operating expenses, including special items, declined 4% year over year to $8,514 million. Consolidated unit cost or cost per available seat mile (CASM), including profit sharing, was flat during the quarter.


At the end of the third quarter, Delta had $1.64 billion in cash and cash equivalents and adjusted net debt of $6.4 billion. The company managed to reduce its net debt significantly from the 2009 levels. Delta generated free cash flow of $1.1 billion and adjusted operating cash flow of $1.8 billion in the third quarter.

Dividend and Share Repurchase

Delta returned $650 million to its shareholders through dividends ($150 million) and buybacks ($500 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 cash quarterly 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 $2.7 billion to shareholders through investor-friendly measures in the first nine months of 2016.

Fourth-Quarter Guidance

The carrier expects operating margin in the range of 14–16% in the fourth quarter. The estimated fuel price, including taxes and refinery impact, is expected in the range of $1.60–$1.65 per gallon for the fourth quarter. System capacity is expected to rise approximately 1% on a year-over-year basis. Passenger unit revenue in the fourth quarter is projected to decline in the band of 3–5%.

DELTA AIR LINES Price, Consensus and EPS Surprise


DELTA AIR LINES Price, Consensus and EPS Surprise | DELTA AIR LINES Quote

Zacks Rank & Key Picks

Currently, Delta has a Zacks Rank #3 (Hold). Some better-ranked stocks in the airline space include Copa Holdings (CPA - Free Report) , SkyWest Inc. (SKYW - Free Report) and ANA Holdings Inc. . While SkyWest and ANA Holdings carry a Zacks Rank# 2 (Buy), 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 2016 Zacks Consensus Estimate for Copa Holdings has climbed 10 cents to $4.55 per share over the last month. The measure has increased 12 cents to $2.65 per share over the last three months at SkyWest. The earnings growth rate for ANA Holdings for the current year stands at a healthy 24.3%, much higher than the industry figure.

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