Delta Air Lines (DAL 50.51, +0.67, +1.34%) traded modestly higher premarket after
the company reported second quarter results in-line with its preannouncement,
lowered fiscal 2018 EPS guidance due to higher fuel costs, and raised its
Delta's adjusted operating revenue of $11.6 bln for the June quarter improved 8% year/year. This quarterly revenue result marks a record for the company, driven by improvements across Delta's business, including double-digit increases in both cargo and loyalty revenue.
Total unit revenues excluding refinery sales (TRASM) increased 4.6%, led by strong demand across all entities and by improving yields. The company had raised its unit revenue guidance to +4-5% from +3-5% in June.
Adjusted pre-tax income for the June quarter 2018 was $1.6 bln, a $183 mln decrease from the June 2017 quarter, as record revenues partially offset the nearly $600 mln impact of higher fuel prices. Adjusted EPS grew 11% to $1.77/share after Delta cut guidance to $1.65-1.75 from $1.80-2.00 in June.
Delta guided for third quarter EPS of $1.65-1.85, which was towards the low end of expectations, while unit revenue growth is expected to remain strong, up 3.5-5.5%.
Delta lowered fiscal 2018 EPS guidance towards the low end of expectations, to $5.35-5.70 from $6.35-6.70, as expected, due mostly to higher fuel costs.
Delta also raised non-fuel unit cost guidance to +1-2% from +0-2%. Offsetting this are plans to lower capacity.
"We expect the sequential improvement in cost trends to continue in the second half of the year as we see additional benefits from our fleet restructuring, our One Delta initiatives, and annualization of accelerated depreciation as well as prior investments in our product," said Paul Jacobson, Delta's Chief Financial Officer. "Our cost structure is an essential component of sustainable performance, and by keeping our cost growth below 2 percent for the year, we are positioning the company to expand margins by year end."
Chief Executive Ed Bastian: "With strong revenue momentum, an improving cost trajectory, and a reduction of 50-100 bps of underperforming capacity from our fall schedule, we have positioned Delta to return to margin expansion by year end."
The Board of Directors declared a quarterly dividend of $0.35/share, an increase of 15 percent over previous levels. This change will bring the total annualized dividend commitment to ~$950 mln, consistent with the company's target of returning 20 to 25 percent of free cash flow to owners over the long-term. That gives Delta a 2.8% dividend yield.
Most of the second quarter numbers were already disclosed. Third quarter guidance was largely in-line and the EPS cut for the year was expected. Lower capacity in the back half of the year is not a surprise given fuel costs while the dividend boost is always welcomed by investors.
Management provided further color in a conference call hosted at 10:00 this morning.
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