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Record 2Q profits

Delta Air Lines (NYSE: DAL) posted a record profit for the second quarter, the latest in a string of record-breaking results as the airline strengthened its partnerships, pushed new revenue initiatives and enjoyed the benefits of lower fuel costs.

Delta reported adjusted pre-tax income1 of $1.6 billion for the quarter, an increase of $202 million on a similar basis over the second quarter of 2014. The airline’s adjusted net income was $1 billion, or about $1.27 per diluted share, up 22 percent from the same quarter of 2014.  On a GAAP basis, pre-tax income totaled $2.4 billion and net income totaled $1.5 billion, or $1.83 per share for the quarter.

“Delta’s record results have allowed the company to invest in its employees through higher wage rates and profit sharing; improve the experience for our customers through new aircraft and innovative partnerships with global carriers; and uniquely deliver value for our shareholders by accelerating our capital returns while also paying down debt,” said Richard Anderson, Delta’s chief executive officer, in a press release. “We have more work and opportunity ahead of us on all of these fronts as we continue to execute on our long-term plan.”

Paul Jacobson, Delta’s executive vice president and chief financial officer, discussed the quarter’s performance in this video. For a glossary of financial terms, click here.

The company reported “solid progress” with several new revenue initiatives, including its Branded Fares, which increased passenger revenues by $56 million, and an enhanced agreement with American Express, which produced an incremental $60 million in revenue contributing to results.

Despite foreign currency pressure, Delta’s operating revenue for the quarter increased 1 percent. Passenger unit revenues dipped 4.6 percent as yields declined by 3.9 percent.

Delta recently agreed to purchase up to $56 million in preferred shares in its Brazilian partner GOL, and to extend the commercial arrangements with GOL to further strengthen the alliance between the airlines.

Fuel prices provided a significant benefit to the company, with adjusted fuel expense down $463 million compared to the same period last year. On a GAAP basis, also including fuel hedge gains and the impact of the refinery, fuel expense declined by $1.2 billion compared to the second quarter of 2014.

And Delta’s refinery in Trainer, Pa., reported a profit of $90 million, helping to offset nearly $600 million in losses from settled fuel hedges. Over the past four quarters, the refinery has produced a cumulative profit of $300 million.

Delta is the first major airline to report earnings for the second quarter. Starting next week, American Airlines, United Airlines, Southwest Airlines, JetBlue Airways and Alaska Airlines will all report their results. 

The industry overall is expected to post strong results for the quarter. Delta has been consistently profitable, on an annual basis, since 2010.

A full transcript of Wednesday's earnings call is here.

 

1  Delta sometimes uses information ("non-GAAP financial measures") that is derived from its Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The tables below show reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.

Pre-Tax Income and Net Income, adjusted for special items.  Delta adjusts for the following items to determine pre-tax income and net income, adjusted for special items, 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 settling 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 the company's core operational performance in the periods shown.

 

Restructuring and other. Because of the variability in restructuring and other, the adjustment for this item is helpful to investors to analyze the company’s recurring core operational performance in the periods shown.

 

Virgin Atlantic MTM adjustments. We record our proportionate share of earnings from our equity investment in Virgin Atlantic in other expense. We adjust for Virgin Atlantic's MTM adjustments to allow investors to better understand and analyze the company’s financial performance in the period shown.

 

Loss on extinguishment of debt. Because of the variability in loss on extinguishment of debt, the adjustment for this item is helpful to investors to analyze the company’s recurring core operational performance in the period shown.

 

Income tax. Pre-tax income is adjusted for the income tax effect of special items. We believe this adjustment allows investors to better understand and analyze the company’s core operational performance in the periods shown.

 

Three Months Ended

 

Net Income

 

June 30, 2015

 

 Per Diluted Share

 

Pre-Tax

 

Income

 

Net

 

Three Months Ended 

(in millions, except per share data)

Income

 

Tax

 

Income

 

June 30, 2015

GAAP

 $ 2,366

 

 $ (881)

 

 $ 1,485

 

 $  1.83

Adjusted for:

 

 

 

 

 

 

 

MTM adjustments and settlements

(720)

 

266

 

(454)

 

 

Restructuring and other

25

 

(9)

 

16

 

 

Virgin Atlantic MTM adjustments

(31)

 

11

 

(20)

 

 

Total adjustments

(726)

 

268

 

(458)

 

(0.56)

Non-GAAP

 $ 1,640

 

 $ (613)

 

 $ 1,027

 

 $  1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Net Income

 

June 30, 2014

 

 Per Diluted Share

 

Pre-Tax

 

Income

 

Net

 

Three Months Ended 

(in millions, except per share data)

Income

 

Tax

 

Income

 

June 30, 2014

GAAP

 $ 1,298

 

 $   (497)

 

 $    801

 

 $  0.94

Adjusted for:

 

 

 

 

 

 

 

MTM adjustments and settlements

(1)

 

           -

 

         (1)

 

 

Restructuring and other

30

 

(10)

 

20

 

 

Loss on extinguishment of debt

111

 

(42)

 

69

 

 

Total adjustments

140

 

(52)

 

88

 

 0.10

Non-GAAP

 $ 1,438

 

 $   (549)

 

 $  889

 

 $  1.04

 

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 settling 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 the company's costs in the periods shown.

 

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

 

June 30

 

 

June 30

(in millions, except per gallon data)

 

 

2015

2014

 

 

2015

2014

Fuel purchase cost

 

 

$ 1,968

$ 3,046

 

 

$ 1.91

$ 3.04

Airline segment fuel hedge gains

 

 

              (126)

              (99)

 

 

            (0.12)

         (0.10)

Refinery segment impact

 

 

                (90)

              (13)

 

 

            (0.09)

         (0.01)

Total fuel expense

 

 

$ 1,752

$ 2,934

 

 

$ 1.70

$ 2.93

MTM adjustments and settlements

 

 

               720

                 1

 

 

             0.70

             -  

Total fuel expense, adjusted

 

 

 $ 2,472

$  2,935

 

 

$  2.40

$  2.93

 
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