Delta Air Lines, Inc. (DAL - Free Report) provided an update on its upcoming third-quarter results yesterday. Despite an overall bullish outlook, shares of the company declined more than 4% at the close of business on Oct 2 as cost woes seem to grip the company.
Although the airline has narrowed its earnings view for the third quarter to $2.20-$2.30 per share (previous estimate: between $2.10 and $2.40), it has raised its non-fuel unit cost (CASM-Ex) guidance. The guided range represents an approximate year-over-year earnings growth of 25% even though its mid-point of $2.25 is lower than the Zacks Consensus Estimate of $2.28.
Meanwhile, CASM-Ex is now anticipated to increase approximately 2.5% year over year compared with a rise of 1-2% expected earlier. The lifted forecast is due to escalated labor costs, weather-related disturbances and record passenger volumes. Additionally, for 2019, the same is predicted to inch up nearly 2% year over year. The view includes higher employee wages and maintenance timing among other factors.
While fellow airline players like United Airlines (UAL - Free Report) , Southwest Airlines (LUV - Free Report) and American Airlines (AAL - Free Report) have been struggling with reduced capacity due to the Boeing MAX grounding issues, Delta has largely remained unaffected with no such exposure to the controversial aircraft. The lower capacity in turn is raising non-fuel unit costs for these carriers.
Q3 View in Detail
Delta anticipates total revenues to augment nearly 6.5% year over year in the third quarter (earlier forecast: 6-7%). Moreover, unit revenues (total revenue per available seat mile) are expected to increase 2.5% within the previously guided range of 1.5-3.5%. Further, pre-tax margin (adjusted) is envisioned to climb approximately 175 basis points year over year to 15.5% (14.5-16.5% estimated previously). The company is expected to generate free cash flow of more than $1 billion in the September quarter.
System capacity is still anticipated to be up approximately 4% on a year-over-year basis. Average fuel price per gallon (adjusted) is projected in the band of $1.95-$2.05 (previously: $1.95-$2.15). Effective tax rate is estimated between 23% and 24%. The carrier returned approximately $470 million to shareholders through a combination of dividends and share repurchases.
Delta will release third-quarter 2019 earnings numbers on Oct 10.
Robust September Traffic
Delta’s consolidated traffic, measured in revenue passenger miles (RPMs), came in at 19.56 billion, up 6.8% year over year. Consolidated capacity (or available seat miles/ASMs) rose 4.7% to 22.93 billion on a year-over-year basis. Consolidated load factor or percentage of seats filled by passengers improved 170 basis points (bps) to 85.3% owing to traffic growth outpacing capacity expansion.
Additionally, this Zacks Rank #3 (Hold) company recorded an on-time performance (mainline) of 88.6% and a completion factor (mainline) of 99.5%. Approximately, 16.5 million passengers boarded Delta in the month. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
In the first nine months of 2019, the company generated consolidated RPMs of 181.66 billion (up 5.6% year over year) and ASMs of 209.92 billion (up 4.5% year over year). Load factor in the period was 86.5% compared with 85.6% at the end of the same period a year ago.
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