Delta Misses Estimates as Costs Rise

ATLANTA -- (TheStreet) -- Delta (DAL) missed analysts' earnings estimates as costs rose, but the carrier forecast stronger unit revenue this month.

The carrier reported quarterly net income excluding special items of $768 million, or 90 cents a share. Analysts surveyed by Thomson Reuters had estimated 91 cents. Revenue rose 1% to $9.92 billion; analysts had estimated $9.96 billion.

Including one-time mark-to-market gains on open fuel hedges and other items, Delta reported net income of $1 billion, or $1.23 a share.

Consolidated unit revenue rose 3% for the quarter, led by a 6% gain in the Pacific. Unit revenue rose 3% in both domestic and trans-Atlantic market but was flat in Latin America, where yield fell 3%. Overall revenue in the Atlantic fell 2% to $1.75 billion, but other segments showed revenue gains led by 5% in the Pacific. Consolidated revenue rose 1% to $8.69 billion.

"Delta's strong September quarter results combined with industry-leading operations and customer service reflect an improved industry structure and our consistent investment in the business," said CEO Richard Anderson, in a prepared statement. "We have moved our focus beyond short-term profit gains to positioning ourselves for long-term margin expansion, sustained profitability and shareholder returns."

Delta forecasts that October unit revenue will rise 4% to 5%.

"We expect our revenue performance to benefit from our continued capacity discipline and further corporate travel gains," said President Ed Bastian. During the current quarter, Delta forecast an operating margin of 4% to 6% with costs up 5% to 7% and capacity down 1% to 3%.

Delta's costs are rising faster than usual. During the quarter, cost per available seat mile excluding fuel, profit sharing and special items rose 5.6%, driven by capacity reductions, higher maintenance costs, wage increases and service expenses.

"With consistent investment in the business, our non-fuel costs have grown in the past few quarters and we expect that trend to continue into the first half of next year," said Chief Financial Officer Paul Jacobson. "However, we are in the process of implementing a $1 billion program of structural initiatives that we anticipate will generate significant savings in the second half of 2013."

During the September quarter, jet fuel production began at Delta's Trainer Refinery, which is expected to be fully operational in the current quarter and to generate a contribution between breakeven and $25 million.

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-- Written by Ted Reed in Charlotte, N.C.

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