Delta Q2 Earnings: Unit Revenue Comes In Positive As Earnings Take A Hit On Higher Costs

+8.29%
Upside
47.87
Market
51.84
Trefis
DAL: Delta Air Lines logo
DAL
Delta Air Lines

Delta Air Lines (NYSE:DAL) reported a rather mixed earnings this time around. Despite a 2.5% growth in the PRASM, profits tumbled by over 20% on the back of higher than expected fuel and labor costs. The news sent the stock price down by about 2% in early trading. That said, the good news is that the company expects to maintain positive PRASM heading into the remainder of the year. As expected, the company hopes to achieve growth by limiting capacity, especially in the Pacific and Atlantic regions. This could turn things around for the company going forward.

Key Highlights:

  • Delta has struggled for over two years to get its unit revenue growing again after the 2014-2016 oil price crash that sparked a major price war among U.S. airlines. However, the company worked hard and finally pushed through the barrier this quarter. The airline achieved a 2.5% growth in the key metric that measures sales relative to flight capacity, on a 0.4% growth in capacity. As mentioned previously, the company expects to maintain positive unit revenue through the remainder of the year. In this respect, the airline hopes to achieve a 2.5-4.5% growth in PRASM in the current quarter.
  • The company suffered a major blow to its profits this time around. The profits fell by a notable 20.8% to $1.22 billion, or $1.68 per share, from $1.55 billion, or $2.03 per share, in the same time period last year. As mentioned above, profits tumbled on the back of higher fuel and labor costs. Aircraft fuel costs rose by a staggering 20% to $1.45 billion in the quarter hurting the bottom line significantly.
  • Costs arising from labor payments accounted for the highest proportion of all ex-fuel expenses. Apart from the expected increase in maintenance costs, the company witnessed salary costs increase by a mammoth 9% to $2.62 billion. Additionally, the company absorbed a $125 million pre-tax loss from a service disruption that was caused following the severe storm over Atlanta in April. Over the next two quarters, we expect to see costs on the rise as oil prices remain volatile and new labor contracts come into play.
  • Over the June quarter, the company managed to generate $1.9 billion of free cash flow. The company used the cash to repurchase about $600 million in shares and pay $150 million out in dividends. Furthermore, management announced a 50% dividend increase, which is due to begin in the September quarter. This represents the fourth consecutive 50% increase to the dividend since the initiation of the program in 2013.
  • Despite the troubled start to the year, the company expects to achieve the lower end of the long-term targets that were most recently revised in May this year. Over the next three years, the airline targets to earn operating margins in the 16-18% range, with an EPS growth of about 15%, while taking in $4.5 billion to $5.5 billion of free cash flows.

View Interactive Institutional Research (Powered by Trefis):

Relevant Articles
  1. Should You Pick Delta Stock Around $40 After Its Q4 Beat?
  2. After Over 20% Gains In 2023 Will Delta Air Stock Outperform Alaska Air?
  3. Should You Pick Delta Stock At $34 After Q3 Beat?
  4. What To Expect From Delta’s Q3?
  5. Which Is A Better Pick – Delta Stock Or United Airlines?
  6. Delta Air Lines Stock Poised For Strong Gains?

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research