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Delta (DAL) Tops Q3 Earnings, Currency Woes Hurt Revenues

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Delta Air Lines Inc.DAL reported third-quarter 2015 earnings (on an adjusted basis) of $1.74 per share, which surpassed the Zacks Consensus Estimate by 3 cents. Moreover, earnings improved 45% from the year-ago figure.

The bottom-line was aided by low fuel costs. Including special items, the carrier's earnings came in at $1.65 per share in the third quarter. The earnings beat pleased the investors. Consequently, shares of the company gained in early trading.

Delta Air Lines Inc. - Earnings Surprise | FindTheBest

Revenues decreased 0.6% year over year to $11,107 million in the reported quarter, short of the Zacks Consensus Estimate of $11,118 million. The top line was hurt by adverse foreign currency movements which negatively impacted the top line to the tune of $235 million.

During the quarter, passenger revenues and cargo revenues declined 1.9% and 19.7% respectively while other revenues improved 13.6% year over year. Delta expects fuel prices to remain volatile going forward. The average fuel price at Delta in the third quarter was $1.80 per gallon, down 38% year over year.

Operating Statistics

Airline traffic, measured in revenue passenger miles, went up 4% year over year to 59.07 billion. Capacity or available seat miles increased 3% to 68.03 billion, while load factor (percentage of seats filled with passengers) improved 40 basis points year over year to 86.8% as traffic growth outpaced capacity expansion. Passenger revenue per available seat mile declined 5% year over year to 14.10 cents mainly due to currency woes.

Operating Expenses

Total operating expenses, including special items, declined 14% year over year to $8,894 million. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel cost, profit sharing and special items, improved 0.9%.

Liquidity

At the end of the third quarter of 2015, Delta had $2.37 billion in cash and cash equivalents and adjusted net debt of $6.4 billion. The company has reduced its net debt significantly since 2009. Delta generated free cash flow of $1.4 billion in the third quarter of 2015. Adjusted operating cash flow was $2.4 billion.

Dividend and Share Repurchase

During the quarter, Delta returned $532 million to its shareholders through dividends ($107 million) and buybacks ($425 million). We are impressed by the company's efforts to return greater value to shareholders consistently.

Fourth-Quarter Guidance

For the fourth quarter of 2015, the carrier expects operating margin in the range of 16% to 18%. The estimated fuel price, including taxes and hedges, is expected in the range of $1.75 to $1.80 per gallon for the final quarter.

Low fuel cost is expected to aid the quarter's results to the tune of $750 million. System capacity is expected to be flat on a year-over-year basis. Passenger unit revenue in the fourth quarter is projected to decline in the band of 2.5% to 4.5%.

The Way Ahead

Delta is benefiting considerably from persistent weak oil prices . With oil prices expected to remain soft for quite some time ahead, Delta should continue to witness an upside. This is because fuel costs account for a major chunk of an airline's operating expenses. Consequently, cheaper oil should boost Delta's bottom line in the coming days.

Zacks Rank

Delta currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider Ryanair Holdings RYAAY , Virgin America VA and SkyWest Inc. SKYW . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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DELTA AIR LINES (DAL): Free Stock Analysis Report

RYANAIR HLDGS (RYAAY): Free Stock Analysis Report

SKYWEST INC (SKYW): Free Stock Analysis Report

VIRGIN AMERICA (VA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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