Delta Air Lines
(
DAL
) - the second largest airline company in U.S. after
United Continental Holdings, Inc.
(
UAL
) reported third-quarter 2012 adjusted earnings of 90 cents. The
quarter's earnings were a penny behind the Zacks Consensus
Estimate.
Adjusted net income excludes $440 million of fuel hedging
gains, $39 million gain related to exchange of slots, $66 million
loss attributable to severance costs, $12 million expense
regarding write-off of debt and $122 million of cost related to
other streamlining actions. Including these charges, Delta
reported a gain of $1.23 per share in contrast to earnings of
$0.65 per share in the year-ago quarter. Such improvement was
mainly attributable to falling fuel prices, fare hikes and the
ongoing cost-cutting measures.
Revenue
Revenue edged up 1% year over year to $9.92 billion in the
reported quarter but fell marginally short of the Zacks Consensus
Estimate of $9.98 billion. On an annualized basis, Passenger
revenue grew 1%, while Other revenue remained nearly at par with
the last-year quarter. However, Cargo revenue dipped 5%.
Airlines traffic, measured in billions of revenue passenger
miles, remained almost flat year over year. Capacity or available
seat miles fell 12% while load factor (percentage of seats filled
with passengers) grew 30 basis points year over year to 86.4%.
Passenger revenue per available seat mile (PRASM) or unit revenue
rose 3% year over year, led by a 3% increase in yield.
Operating Expenses
Total operating expenses, including special items, fell 4%
year over year, primarily due to drop in aircraft fuel and
related taxes.
Consolidated unit cost or cost per available seat mile (CASM),
excluding fuel cost, profit sharing and special items, crept up
5.6% and CASM, including fuel expenses, profit sharing and
special items, dipped 2% year over year in the reported
quarter.
Liquidity
Delta Air Lines' balance sheet continues to be strong. At the
end of September 2012, the company had $5.1 billion in
unrestricted liquidity including $3.2 billion in cash and
short-term investments, and $1.9 billion in undrawn revolving
credit facilities.
The company reduced its adjusted net debt to $11.9 billion
from $12.1 billion at the end of the prior quarter. Delta has
attained approximately $5 billion of debt reduction over the past
two years.
The company generated operating cash flow of $545 million in
the reported quarter while capital expenditures were $425
million.
Guidance
For the fourth quarter, Delta Air Lines expects operating
margin in the range of 4-6% and consolidated unit cost, excluding
fuel and profit sharing, to grow 5-7% year over year.
Additionally, the company expects domestic flying to decrease
1-3% year over year and international flying to decrease 2-4%
year over year.
The estimated fuel price, including taxes and hedges, is
approximately in between $3.15 and $3.20 per gallon and total
liquidity is projected at $5.2 billion with capital expenditures
of $450-$550 million.
Our Take
We are maintaining our long-term Underperform recommendation
on Delta Air Lines. For the short term, the company retains Zacks
# 3 (Hold) Rank.
DELTA AIR LINES (DAL): Free Stock Analysis
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