Adjusted pre-tax income for the
“Despite fuel price pressures, the Delta people once again delivered solid results across the board, with double digit operating margins, strong improvements in customer satisfaction, and progress on our international expansion with the closing of our Aeroméxico transaction,” said
April Storm Impact
Last week, severe weather in
“We hold ourselves to a high standard and we apologize to all of our customers who were impacted by last week’s events,” continued Bastian. “I also want to thank the Delta people for working through some incredibly tough conditions to take care of our customers and reset our operation. They proved again they are the best in the business.”
Revenue Environment
Delta’s operating revenue for the March quarter was down
“March marked the first month of positive passenger unit revenues since
Increase (Decrease) |
|||||||
Change |
Unit |
||||||
Revenue |
1Q17 ($M) |
YoY |
Revenue |
Yield |
Capacity |
||
Mainline |
4,252 |
1.0 % |
(1.1) % |
(1.8) % |
2.1 % |
||
Regional |
1,284 |
(2.6) % |
(1.8) % |
(1.3) % |
(0.8) % |
||
Total Domestic |
5,536 |
0.1 % |
(1.4) % |
(2.0) % |
1.6 % |
||
Atlantic |
882 |
(4.0) % |
(0.5) % |
(3.0) % |
(3.6) % |
||
Pacific |
550 |
(13.7) % |
(3.9) % |
(2.2) % |
(10.1) % |
||
Latin America |
720 |
6.4 % |
4.4 % |
1.0 % |
1.9 % |
||
Total Passenger |
7,688 |
(1.0) % |
(0.5) % |
(1.4) % |
(0.5) % |
||
Cargo Revenue |
160 |
(1.2) % |
|||||
Other Revenue |
1,300 |
(2.0) % |
|||||
Total Revenue |
9,148 |
(1.1) % |
For the June quarter, Delta is expecting its margins to expand relative to prior year, as the improvement in unit revenues offsets higher costs.
2Q17 Forecast |
|
Operating margin |
17% – 19% |
Fuel price, including taxes and refinery impact |
|
Compared to 2Q16 |
|
Passenger unit revenue |
Up 1% – 3% |
CASM-Ex, including profit sharing2 |
Up 6% – 8% |
Normalized CASM-Ex, including profit sharing3 |
Up 4% – 6% |
System Capacity |
Up 0% – 1% |
See note A for information about reconciliation of projected non-GAAP financial measures |
Cost Performance
Adjusted fuel expense4 increased
Adjusted non-operating expense declined
“We expect the entirety of our 2017 margin pressure to have occurred in the March quarter from higher fuel prices. With an improving revenue profile and further improvement as our cost growth moderates in the second half, we are on track to expand margins for the balance of the year,” said
Cash Flow, Shareholder Returns, and Adjusted Net Debt
During the quarter, Delta issued
Delta contributed
The company continued to invest in the business for the long term with
Adjusted net debt at the end of the quarter increased to
For the March quarter, the company returned
March Quarter Results
Special items for the quarter consist primarily of mark-to-market adjustments on fuel hedges. Operating cash flow has been adjusted for accelerated pension contribution funded through debt issuance.
GAAP |
Adjusted |
|||
($ in millions except per share and unit costs) |
1Q17 |
1Q16 |
1Q17 |
1Q16 |
Pre-tax income |
915 |
1,434 |
847 |
1,560 |
Net income |
603 |
946 |
560 |
1,026 |
Diluted earnings per share |
0.82 |
1.21 |
0.77 |
1.32 |
Fuel expense (including regional carriers) |
1,482 |
1,394 |
1,566 |
1,239 |
Average fuel price per gallon |
1.62 |
1.50 |
1.71 |
1.33 |
Consolidated unit cost (CASM/CASM-Ex) |
13.99 |
13.26 |
10.92 |
10.33 |
Non-operating expense |
138 |
106 |
122 |
135 |
Operating cash flow |
(801) |
1,011 |
677 |
1,351 |
Total debt and capital leases |
9,227 |
8,451 |
8,815 |
7,008 |
About Delta
End Notes |
|
(1) |
Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release to the comparable GAAP metric and provides the reasons management uses those measures. |
(2) |
CASM-Ex, including profit sharing: In addition to fuel expense, Delta believes adjusting for certain other expenses is helpful to investors because other expenses are not related to the generation of a seat mile. These expenses include aircraft maintenance and staffing services Delta provides to third parties, Delta’s vacation wholesale operations and refinery cost of sales to third parties. The amounts excluded were |
(3) |
Normalized CASM-Ex, including profit sharing: Delta’s new pilot contract was ratified on |
(4) |
Adjusted fuel expense reflects, among other things, the impact of mark-to-market (“MTM”) adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. See Note A for a reconciliation of adjusted fuel expense and average fuel price per gallon to the comparable GAAP metric. |
Forward Looking Statements
Statements in this investor update that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the effects of terrorist attacks or geopolitical conflict; the cost of aircraft fuel; the impact of fuel hedging activity including rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the availability of aircraft fuel; the performance of our significant investments in airlines in other parts of the world; the possible effects of accidents involving our aircraft; the restrictions that financial covenants in our financing agreements could have on our financial and business operations; labor issues; interruptions or disruptions in service at one of our hub, gateway, or key airports; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third party regional carriers; failure or inability of insurance to cover a significant liability at
|
||||
Consolidated Statements of Operations |
||||
(Unaudited) |
||||
Three Months Ended |
||||
|
||||
(in millions, except per share data) |
2017 |
2016 |
$ Change |
% Change |
Operating Revenue: |
||||
Passenger: |
||||
Mainline |
$ 6,404 |
$ 6,444 |
$ (40) |
(1)% |
Regional carriers |
1,284 |
1,318 |
(34) |
(3)% |
Total passenger revenue |
7,688 |
7,762 |
(74) |
(1)% |
Cargo |
160 |
162 |
(2) |
(1)% |
Other |
1,300 |
1,327 |
(27) |
(2)% |
Total operating revenue |
9,148 |
9,251 |
(103) |
(1)% |
Operating Expense: |
||||
Salaries and related costs |
2,473 |
2,311 |
162 |
7% |
Aircraft fuel and related taxes |
1,240 |
1,227 |
13 |
1% |
Regional carriers expense |
||||
Fuel |
242 |
167 |
75 |
45% |
Other |
868 |
839 |
29 |
3% |
Depreciation and amortization |
540 |
486 |
54 |
11% |
Contracted services |
523 |
476 |
47 |
10% |
Aircraft maintenance materials and outside repairs |
518 |
449 |
69 |
15% |
Passenger commissions and other selling expenses |
404 |
388 |
16 |
4% |
Landing fees and other rents |
365 |
348 |
17 |
5% |
Passenger service |
220 |
189 |
31 |
16% |
Profit sharing |
151 |
272 |
(121) |
(44)% |
Aircraft rent |
84 |
66 |
18 |
27% |
Other |
467 |
493 |
(26) |
(5)% |
Total operating expense |
8,095 |
7,711 |
384 |
5% |
Operating Income |
1,053 |
1,540 |
(487) |
(32)% |
Non-Operating Expense: |
||||
Interest expense, net |
(94) |
(107) |
13 |
(12)% |
Miscellaneous, net |
(44) |
1 |
(45) |
NM |
Total non-operating expense, net |
(138) |
(106) |
(32) |
30% |
Income Before Income Taxes |
915 |
1,434 |
(519) |
(36)% |
Income Tax Provision |
(312) |
(488) |
176 |
(36)% |
Net Income |
$ 603 |
$ 946 |
$ (343) |
(36)% |
Basic Earnings Per Share |
$ 0.83 |
$ 1.22 |
||
Diluted Earnings Per Share |
$ 0.82 |
$ 1.21 |
||
Basic Weighted Average Shares Outstanding |
728 |
774 |
||
Diluted Weighted Average Shares Outstanding |
731 |
780 |
|
|||
Three Months Ended |
|||
2017 |
2016 |
Change |
|
Consolidated: |
|||
Revenue passenger miles (millions) |
47,952 |
47,725 |
0.5% |
Available seat miles (millions) |
57,871 |
58,145 |
(0.5%) |
Passenger mile yield (cents) |
16.03 |
16.26 |
(1.4%) |
Passenger revenue per available seat mile (cents) |
13.28 |
13.35 |
(0.5%) |
Operating cost per available seat mile (cents) |
13.99 |
13.26 |
5.5% |
CASM-Ex, including profit sharing – see Note A (cents) |
10.92 |
10.33 |
5.8% |
Passenger load factor |
82.9% |
82.1% |
0.8 pts |
Fuel gallons consumed (millions) |
918 |
930 |
(1.3%) |
Average price per fuel gallon |
$ 1.62 |
$ 1.50 |
8.0% |
Average price per fuel gallon, adjusted – see Note A |
$ 1.71 |
$ 1.33 |
28.6% |
Number of aircraft in fleet, end of period |
984 |
931 |
53 |
Full-time equivalent employees, end of period |
85,214 |
83,817 |
1.7% |
Mainline: |
|||
Revenue passenger miles (millions) |
43,074 |
42,786 |
0.7% |
Available seat miles (millions) |
51,489 |
51,710 |
(0.4%) |
Operating cost per available seat mile (cents) |
13.44 |
12.84 |
4.7% |
CASM-Ex, including profit sharing – see Note A (cents) |
10.54 |
9.93 |
6.1% |
Fuel gallons consumed (millions) |
772 |
784 |
(1.5%) |
Average price per fuel gallon |
$ 1.60 |
$ 1.56 |
2.6% |
Average price per fuel gallon, adjusted – see Note A |
$ 1.71 |
$ 1.36 |
25.7% |
Number of aircraft in fleet, end of period |
846 |
814 |
32 |
Note: except for full-time equivalent employees and number of aircraft in fleet, consolidated data presented includes operations under Delta’s contract carrier arrangements. |
|
|||||
Consolidated Statements of Cash Flows |
|||||
Three Months Ended |
|||||
(in millions) |
2017 |
2016 |
|||
Cash Flows From Operating Activities: |
|||||
Net income |
$ |
603 |
$ |
946 |
|
Depreciation and amortization |
540 |
486 |
|||
Hedge derivative contracts |
(57) |
145 |
|||
Deferred income taxes |
301 |
475 |
|||
Pension, postretirement and postemployment payments greater than expense |
(2,676) |
(760) |
|||
Changes in: |
|||||
Hedge margin |
38 |
(335) |
|||
Air traffic liability |
1,784 |
1,485 |
|||
Profit sharing |
(964) |
(1,226) |
|||
Other working capital changes, net |
(370) |
(205) |
|||
Net cash (used in) provided by operating activities |
(801) |
1,011 |
|||
Cash Flows From Investing Activities: |
|||||
Property and equipment additions: |
|||||
Flight equipment, including advance payments |
(595) |
(764) |
|||
Ground property and equipment, including technology |
(207) |
(107) |
|||
Purchase of equity investments |
(622) |
– |
|||
Net redemptions (purchases) of short-term investments |
(256) |
265 |
|||
Other, net |
(54) |
5 |
|||
Net cash used in investing activities |
(1,734) |
(601) |
|||
Cash Flows From Financing Activities: |
|||||
Payments on long-term debt and capital lease obligations |
(288) |
(459) |
|||
Repurchases of common stock |
(200) |
(775) |
|||
Cash dividends |
(149) |
(107) |
|||
Fuel card obligation |
334 |
141 |
|||
Proceeds from short-term obligations |
– |
68 |
|||
Proceeds from long-term obligations |
2,004 |
450 |
|||
Other, net |
(21) |
8 |
|||
Net cash provided by (used in) financing activities |
1,680 |
(674) |
|||
Net Increase (Decrease) in Cash and Cash Equivalents |
(855) |
(264) |
|||
Cash and cash equivalents at beginning of period |
2,762 |
1,972 |
|||
Cash and cash equivalents at end of period |
$ |
1,907 |
$ |
1,708 |
|
||||
(in millions) |
|
|
||
ASSETS |
||||
Current Assets: |
||||
Cash and cash equivalents |
$ 1,907 |
$ 2,762 |
||
Short-term investments |
743 |
487 |
||
Accounts receivable, net |
2,307 |
2,064 |
||
Fuel inventory |
487 |
519 |
||
Expendable parts and supplies inventories, net |
368 |
372 |
||
Prepaid expenses and other |
1,068 |
1,247 |
||
Total current assets |
6,880 |
7,451 |
||
Property and Equipment, Net: |
||||
Property and equipment, net |
24,817 |
24,375 |
||
Other Assets: |
||||
|
9,794 |
9,794 |
||
Identifiable intangibles, net |
4,855 |
4,844 |
||
Deferred income taxes, net |
2,750 |
3,064 |
||
Other noncurrent assets |
2,363 |
1,733 |
||
Total other assets |
19,762 |
19,435 |
||
Total assets |
$ 51,459 |
$ 51,261 |
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||
Current Liabilities: |
||||
Current maturities of long-term debt and capital leases |
$ 1,040 |
$ 1,131 |
||
Air traffic liability |
6,410 |
4,626 |
||
Accounts payable |
2,353 |
2,572 |
||
Accrued salaries and related benefits |
1,835 |
2,924 |
||
Frequent flyer deferred revenue |
1,696 |
1,648 |
||
Other accrued liabilities |
2,619 |
2,338 |
||
Total current liabilities |
15,953 |
15,239 |
||
Noncurrent Liabilities: |
||||
Long-term debt and capital leases |
8,187 |
6,201 |
||
Pension, postretirement and related benefits |
10,291 |
13,378 |
||
Frequent flyer deferred revenue |
2,261 |
2,278 |
||
Other noncurrent liabilities |
1,822 |
1,878 |
||
Total noncurrent liabilities |
22,561 |
23,735 |
||
Commitments and Contingencies |
||||
Stockholders’ Equity |
12,945 |
12,287 |
||
Total liabilities and stockholders’ equity |
$ 51,459 |
$ 51,261 |
Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below.
Delta sometimes uses information (“non-GAAP financial measures”) that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the
Forward Looking Projections. Delta does not reconcile forward looking non-GAAP financial measures because MTM adjustments and settlements will not be known until the end of the period and could be significant.
Pre-Tax Income and Net Income, adjusted. We adjust for the following items to determine pre-tax income and net income, adjusted, for the reasons described below:
Mark-to-Market (“MTM”) adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.
Income tax. We included the income tax effect of adjustments when presenting net income, adjusted. We believe that presenting the income tax effect of adjustments allows investors to better understand and analyze the company’s core financial performance in the periods shown.
Three Months Ended |
Three Months Ended |
||||||||
(in millions, except per share data) |
Pre-Tax |
Income |
Net |
Net Income |
|||||
GAAP |
$ |
915 |
$ |
(312) |
$ |
603 |
$ |
0.82 |
|
Adjusted for: |
|||||||||
MTM adjustments and settlements |
(84) |
29 |
(55) |
||||||
Virgin Atlantic MTM adjustments |
16 |
(4) |
12 |
||||||
Total adjustments |
(68) |
25 |
(43) |
(0.05) |
|||||
Non-GAAP |
$ |
847 |
$ |
(287) |
$ |
560 |
$ |
0.77 |
|
Year-over-year change |
(713) |
||||||||
Three Months Ended |
Three Months Ended |
||||||||
(in millions, except per share data) |
Pre-Tax Income |
Income Tax |
Net Income |
Net Income |
|||||
GAAP |
$ |
1,434 |
$ |
(488) |
$ |
946 |
$ |
1.21 |
|
Adjusted for: |
|||||||||
MTM adjustments and settlements |
155 |
(57) |
98 |
||||||
Virgin Atlantic MTM adjustments |
(29) |
11 |
(18) |
||||||
Total adjustments |
126 |
(46) |
80 |
0.11 |
|||||
Non-GAAP |
$ |
1,560 |
$ |
(534) |
$ |
1,026 |
$ |
1.32 |
Fuel expense, adjusted and Average fuel price per gallon, adjusted. The tables below show the components of fuel expense, including the impact of the refinery segment and hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the reason described below:
MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.
Consolidated: |
|||||||||
Average Price Per Gallon |
|||||||||
Three Months Ended |
Three Months Ended |
||||||||
(in millions, except per gallon data) |
2017 |
2016 |
2017 |
2016 |
|||||
Fuel purchase cost |
$ |
1,531 |
$ |
1,093 |
$ |
1.68 |
$ |
1.18 |
|
Airline segment fuel hedge (gains) losses |
(5) |
273 |
(0.01) |
0.29 |
|||||
Refinery segment impact |
(44) |
28 |
(0.05) |
0.03 |
|||||
Total fuel expense |
$ |
1,482 |
$ |
1,394 |
$ |
1.62 |
$ |
1.50 |
|
MTM adjustments and settlements |
84 |
(155) |
0.09 |
(0.17) |
|||||
Total fuel expense, adjusted |
$ |
1,566 |
$ |
1,239 |
$ |
1.71 |
$ |
1.33 |
|
Change year-over-year |
327 |
||||||||
Mainline: |
|||||||||
Three Months Ended |
|||||||||
2017 |
2016 |
||||||||
Mainline average price per gallon |
$ |
1.60 |
$ |
1.56 |
|||||
MTM adjustments and settlements |
0.11 |
(0.20) |
|||||||
Mainline average price per gallon, adjusted |
$ |
1.71 |
$ |
1.36 |
Non-Fuel Unit Cost or Cost per Available Seat Mile, Including Profit Sharing (“CASM-Ex”). We adjust CASM for the following items to determine CASM-Ex, including profit sharing for the reasons described below:
Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes (including our regional carriers) allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.
Other expenses. Other expenses include aircraft maintenance and staffing services we provide to third parties, our vacation wholesale operations, and refinery cost of sales to third parties. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these sales to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.
Pilot contract impact, normalized. Delta’s new pilot contract was ratified on
Consolidated CASM-Ex: |
||||
Three Months Ended |
||||
|
|
Change |
||
CASM (cents) |
13.99 |
13.26 |
||
Adjusted for: |
||||
Aircraft fuel and related taxes |
(2.56) |
(2.40) |
||
Other expenses |
(0.51) |
(0.53) |
||
CASM-Ex |
10.92 |
10.33 |
5.8% |
|
Adjusted for: |
||||
Pilot contract impact, normalized |
— |
0.21 |
||
CASM-Ex, adjusted for pilot contract impact, normalized |
10.92 |
10.54 |
3.6% |
|
Mainline CASM-Ex: |
||||
Three Months Ended |
||||
|
|
|||
Mainline CASM (cents) |
13.44 |
12.84 |
||
Adjusted for: |
||||
Aircraft fuel and related taxes |
(2.40) |
(2.36) |
||
Other expenses |
(0.50) |
(0.55) |
||
Mainline CASM-Ex |
10.54 |
9.93 |
Non-Operating Expense, adjusted. Delta excludes
(in millions) |
Three Months Ended |
Three Months Ended |
||
GAAP |
$ |
(138) |
$ |
(106) |
Items excluded: |
||||
Virgin Atlantic MTM adjustments |
16 |
(29) |
||
Non-GAAP |
$ |
(122) |
$ |
(135) |
Change year-over-year |
13 |
|||
Adjusted Net Debt. Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted debt by cash, cash equivalents and short-term investments, and hedge margin receivable, resulting in adjusted net debt, to present the amount of assets needed to satisfy the debt. Management believes this metric is helpful to investors in assessing the company’s overall debt profile. Management has reduced adjusted debt by the amount of hedge margin receivable, which reflects cash posted to counterparties, as we believe this removes the impact of current market volatility on our unsettled hedges and is a better representation of the continued progress we have made on our debt initiatives.
(in millions) |
|
|
|||||||
Debt and capital lease obligations |
$ |
9,227 |
$ |
8,451 |
|||||
Plus: unamortized discount, net and debt issuance costs |
117 |
133 |
|||||||
Adjusted debt and capital lease obligations |
$ |
9,344 |
$ |
8,584 |
|||||
Plus: 7x last twelve months’ aircraft rent |
2,121 |
1,792 |
|||||||
Adjusted total debt |
11,465 |
10,376 |
|||||||
Less: cash, cash equivalents and short-term investments |
(2,650) |
(2,914) |
|||||||
Less: hedge margin receivable |
— |
(454) |
|||||||
Adjusted net debt |
$ |
8,815 |
$ |
7,008 |
Operating Cash Flow, adjusted. We adjusted operating cash flow because management believes this metric is helpful to investors to evaluate the company’s ability to generate cash that is available for use for capital expenditures, debt service or general corporate initiatives. Adjustments include:
Hedge deferrals. During the
Pension contribution. In March, we contributed
Hedge margin and other. Operating cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company’s core operational performance in the periods shown.
(in millions) |
Three Months Ended |
Three Months Ended |
|||
Net cash provided by operating activities (GAAP) |
$ |
(801) |
$ |
1,011 |
|
Adjustments: |
|||||
Hedge deferrals |
(22) |
— |
|||
Pension contribution |
1,500 |
— |
|||
Hedge margin and other |
— |
340 |
|||
Net cash provided by operating activities, adjusted |
677 |
1,351 |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/delta-air-lines-announces-march-quarter-profit-300438584.html
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