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

Zacks Equity Research

Delta Air Lines DAL, 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 , Alaska Air Group ALK and Southwest Airlines LUV. 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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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
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