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Delta Down on Investor Update, Hurricane Florence to Hurt Q3

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Shares of Delta Air Lines, Inc. (DAL - Free Report) declined 3.4% to $54.69 on Oct 2, after the airline behemoth disclosed at an Investor Update that it anticipates Hurricane Florence to hurt third-quarter pre-tax income by approximately $30 million. The Atlanta, GA-based carrier further said that weather-related disruptions might weigh on unit revenues to the tune of roughly 0.5 points. Also, significant increase in fuel prices over the past 12 months is expected to limit bottom-line growth.

Despite high fuel costs, Delta expects adjusted total revenue per available seat miles (TRASM: a key measure of unit revenue) to increase year over year between 4% and 5% in the third quarter (the previous view had projected the metric to increase in the 3.5-5.5% band). Strong demand for air travel and improving yields led to the bullish forecast.

According to Delta, these favorable factors partially mitigated the adverse impact of sharp rise in fuel prices per gallon, which are projected between $2.22 and $2.27 for third-quarter 2018. Adjusted pre-tax margin is anticipated to be approximately 13% (mid-point of the guided range in July).

 

Non-fuel unit costs are anticipated to be roughly flat year over year. System capacity is anticipated to increase approximately 3.9%.  Delta’s third-quarter earnings per share are expected to be in the $1.70-$1.80 band (the previous view had projected the metric in the $1.65-$1.85 range). Notably, this third-quarter projection is higher than $1.57 per share registered in the year-ago period. The uptick can be attributed to reduction in effective tax rate, which is expected to be approximately 23% in the soon-to-be-reported quarter.

The above update apart, Delta unveiled its September traffic report on the same day. Consolidated traffic, measured in revenue passenger miles (RPMs), came in at 18.3 billion, up 3.7% year over year. Consolidated capacity (or available seat miles/ASMs) expanded 4.7% to 21.9 billion on a year-over-year basis. Consolidated load factor (percentage of seats filled by passengers) decreased 80 basis points to 83.6% as capacity expansion outpaced traffic growth. The carrier transported 15.2 million passengers in the month, up 4.1% on a year-over-year basis.

Zacks Rank & Key Picks

Delta has a Zacks Rank #3 (Hold). Some better-ranked airline stocks are Spirit Airlines, Inc. (SAVE - Free Report) , Southwest Airlines Co. (LUV - Free Report) and United Continental Holdings, Inc. (UAL - Free Report) . While Spirit sports a Zacks Rank #1 (Strong Buy), Southwest and United Continental carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Spirit, Southwest and United Continental have rallied more than 23%, 4% and 35%, respectively, in a year’s time.

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