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Delta (DAL) Beats on Q3 Earnings, Stock Down on Dull Q4 View

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Delta Air Lines (DAL - Free Report) , which kick-started the third-quarter 2019 earnings season in the airline space, reported earnings per share (excluding 1 cent from non-recurring items) of $2.32 per share, which surpassed the Zacks Consensus Estimate by 5 cents. The bottom line also improved 28.9% on a year-over- year basis mainly due to low fuel costs.

Despite the earnings beat, the stock declined in pre-market trading on account of bearish guidance for fourth-quarter 2019. Delta expects fourth-quarter earnings between $1.20 and $1.50 per share. The mid-point of the guided range ($1.35 per share) is below the Zacks Consensus Estimate of $1.50.

Operating revenues in the quarter under review came in at $12,560 million, marginally missing the Zacks Consensus Estimate. However, the top line increased on a year-over-year basis.

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

 

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

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote

Other Details

During the quarter under review, passenger revenues, which accounted for 90.8% of the top line, improved 6% mainly due to strong demand for air travel. Meanwhile, cargo revenues declined 17%. Other revenues increased 3%. The average fuel price (adjusted) in the third quarter was $1.96 per gallon, down 11.5% on a year-over-year basis.

Revenue passenger miles (a measure of air traffic) increased 5.6% to 66.86 billion. Capacity or available seat miles expanded 3.9% to 75.74 billion. Load factor (percentage of seats filled by passengers) improved 140 basis points to 88.3% as traffic growth outpaced capacity expansion. Passenger revenue per available seat mile (PRASM) increased 1.7% year over year to 15.06 cents. Passenger mile yield improved 0.1% to 17.07 cents. On an adjusted basis, total revenue per available seat mile (TRASM) in the third quarter increased 2.5% year over year to 16.57 cents driven by healthy demand for leisure and corporate travel.

Total operating expenses, including special items, climbed 2% year over year to $10,489 million. Operating cost per available seat mile decreased 2.1% to 13.85 cents due to lower fuel costs and higher capacity. However, non-fuel unit costs increased 2.4% year over year to 9.84 cents due to high employee costs, increase in passenger volumes among other factors.

Liquidity, Dividend and Share Repurchase

Delta generated free cash flow of $1.4 billion and operating cash flow of $2.2 billion in the third quarter. On a year-to-date basis, the carrier generated $7.5 billion of operating cash flow and $4 billion of free cash flow.

Long-term debt and finance leases stood at $7,923 million at the end of the reported quarter compared with $8,253 million at the end of 2018. The company has managed to reduce its net debt significantly from the 2009 levels. Delta exited the quarter with $1,899 million in cash and cash equivalents.

Delta returned $468 million to its shareholders through dividends ($208 million) and share buybacks ($260 million) in the quarter under review.

4Q Guidance

For fourth-quarter 2019, the carrier anticipates pre-tax margin in the range of 9.5-11.5%. The estimated fuel price, including taxes, settled hedges and refinery impact, is expected in the band of $2-$2.20 per gallon. Total unit revenue, on an adjusted basis, is anticipated to be either flat or increase up to 2% year over year.

System capacity is anticipated to be up approximately 4.5% on a year-over-year basis. Cost per available seat mile, excluding fuel and profit sharing, is projected to rise 4-5% in the fourth quarter.

Upcoming Releases

Investors interested in the Zacks Airline industry are keenly awaiting third-quarter 2019 earnings reports from key players like United Airlines (UAL - Free Report) , Alaska Air Group (ALK - Free Report) and Southwest Airlines (LUV - Free Report) . While United Airlines is scheduled to report on Oct 15, Alaska Air and Southwest Airlines will do so on Oct 24.

Zacks Rank

Delta carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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