Delta Misses Q4 Earnings, Revenues; Q1 PRASM View Soft

Delta Air Lines Inc. (DAL - Analyst Report) kicked off the fourth quarter earnings season for airline stocks, but on a disappointing note. The airline behemoth reported lower than expected revenues as well as earnings in the final quarter of 2015.

The Atlanta, GA-based carrier’s fourth quarter earnings (excluding special items) of $1.18 per share fell short of the Zacks Consensus Estimate by a penny. Earnings however increased 51% on a year-over-year basis backed by low fuel costs.

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Delta Air Lines Inc. (DAL - Analyst Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Operating revenues came in at $9,502 million, lagging the Zacks Consensus Estimate of $9,624 million. Revenues also declined 2% from the year-ago figure. The top line was hurt by adverse foreign currency movements which negatively impacted the top line to the tune of $160 million.

During the quarter, passenger revenues and cargo revenues declined 1.3% and 20.4% respectively while other revenues improved 1.3% year over year. Delta expects soft fuel prices to result in savings in excess of $3 billion in 2016. The average fuel price at Delta in the fourth quarter was $1.85 per gallon, down 29% year over year.

Operating Statistics

Revenue passenger miles (a measure of air traffic), went up 3% year over year to 49.57 billion. Capacity or available seat miles remained flat at 58.2 billion. Load factor (percentage of seats filled with passengers) improved 240 basis points year over year to 85.2% as traffic expanded while capacity expansion was non-existent in the quarter. Passenger revenue per available seat mile (PRASM) declined 1.6% year over year to 13.96 cents mainly due to currency woes.

Operating Expenses

Total operating expenses, including special items, declined 26% year over year to $7,785 million. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel cost, profit sharing and special items, improved 1.9%.

Liquidity

At the end of the fourth quarter of 2015, Delta had $1.97 billion in cash and cash equivalents and adjusted net debt of $6.7 billion. The company has reduced its net debt significantly since 2009. Delta generated free cash flow of $300 million in the fourth quarter of 2015. Adjusted operating cash flow was $1.4 billion.

Dividend and Share Repurchase

The final quarter of 2015 saw the company returning $530 million to shareholders. During 2015, Delta returned $2.6 billion to its shareholders through dividends ($360 million) and buybacks ($2.2 billion). We are impressed by the company’s efforts to return greater value to shareholders consistently.
 

First-Quarter 2016 Guidance

For the first quarter of 2016, the carrier expects operating margin in the range of 18% to 20%. Fuel price, including taxes and hedges, is expected in the range of $1.20 to $1.25 per gallon for the first quarter. System capacity is expected to rise in the band of 2% to 3% on a year-over-year basis. Passenger unit revenue, or PRASM, in the first quarter is projected to decline in the band of 2.5% to 4.5%.

Zacks Rank

Delta Air Lines currently sports a Zacks Rank #1 (Strong Buy). Investors interested in the airline space may also consider American Airlines Group (AAL - Analyst Report), Southwest Airlines Co. (LUV - Analyst Report) and Virgin America (VA - Snapshot Report). All the three carriers sport the same bullish rank as Delta.