Delta Beats Estimates but Loses on Fuel Hedging

ATLANTA (TheStreet) -- Delta (DAL) reported a quarterly net profit excluding items and narrowly beat analysts' estimates, but ill-fated fuel hedging led to a $561 million charge on mark-to-market adjustments.

The carrier said net income excluding items was $586 million, or 69 cents a share. Analysts surveyed by Thomson Reuters had estimated 68 cents a share. Revenue rose 6% to $9.7 billion, in line with estimates.

Including items, Delta lost $168 million, or 20 cents a share. Special items totaled $754 million including a $561 million charge on mark-to-market adjustments for fuel hedges settling in future periods, $171 million in severance and related costs of voluntary early-out programs and $22 million for fleet, facilities and other items.

"Delta's solid profit this quarter (excluding special items) is evidence that our business and industry are evolving and delivering meaningful improvements," said CEO Richard Anderson, in a prepared statement. "Moving forward, we expect to have strong profitability in the September quarter with a 10 - 12% operating margin."

During the quarter, capacity fell by 1.3% but traffic rose 0.3% as load factor increased by 1.4 points to 85.1%. Unit revenue rose 8%, with 8% or 9% gains in every region.

On the cost side, cost per available seat mile excluding fuel and special items rose 3.6%, driven by the impact of capacity reductions and other expenses. "While we are experiencing cost pressures in the near-term, we are implementing the structural initiatives, including the 717 transaction and Trainer refinery acquisition, needed to achieve better cost outcomes," said Chief Financial Officer Paul Jacobson, in a prepared statement. "We expect to begin realizing some of these benefits in the December quarter and into 2013."

Looking ahead, the carrier anticipates a third-quarter operating margin of 10% to 12%, with unit costs excluding fuel and profit sharing up 5% to 6% and system capacity down 1% to 3%, compared to the same period a year earlier.

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