Delta Beats on Earnings, Misses on Revenue as Forex Takes Its Toll

The company kicks off airline earnings season on a positive note, but the results show the sector is still dealing with turbulence.
By Lou Whiteman ,

Delta Air Lines (DAL) - Get Report  on Thursday got airline earnings season off to a solid start, reporting adjusted net income of $1.47 a share and beating analyst estimates.

Atlanta-based Delta said it earned adjusted pretax income of $1.7 billion for the quarter on revenue of $10.447 billion. Analysts had been expecting the company to earn $1.42 a share on sales of $10.489 billion.

The airline said that quarterly revenue was depressed in part due to foreign currency pressures, saying that passenger unit revenue declined by 4.9% on a 3.2% increase in capacity.

Airline investors have been cautious on the sector due in part to fears that the companies weren't doing enough to restrain capacity, which could threaten yields, and due to headwinds particularly in international markets. The airline said that it intends to reduce U.S./U.K. capacity this winter due to foreign currency pressure from the drop in the British pound and continued business uncertainty surrounding Brexit.

Overall, Delta said that its system capacity would grow about 1% year over year.

"While the revenue environment remains challenging, with persistent headwinds from close-in domestic yields and geopolitical uncertainty, we remain focused on achieving our goal of positive unit revenues by year end," President Glen Hauenstein said in a statement. "We'll continue to move quickly and aggressively with all our commercial levers, including an incremental 1 point reduction in our December quarter capacity levels, to make sure we create the momentum we need to achieve this goal."

The company said it expects to generate an operating margin of between 19% and 21% in the third quarter, and expects passenger unit revenue to be down between 4% and 6% during the period. Delta has been one of the few U.S. airlines to express hope that passenger unit revenue trends could turn positive by year's end, with most in the industry hoping for a 2017 recovery.

The stock fell 1% in premarket trading to $39.15.

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