Delta Cautious But Not Suicidal (DAL, NWA)

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Delta Air Lines (NYSE: DAL) is in an odd spot this morning.  The company beat earnings and claims a gain before extraordinary items, yet it still had a wide loss on a net income basis.  The carrier posted Q2 earnings of $0.35 EPS excluding non-recurring items, $0.25 better than the First Call’s $0.10 estimate; revenues were $5.5 Billion versus the $5.39 Billion consensus. 

Delta sees Q3 operating margin of -1.3% ex-items and sees Fiscal 2008 operating margin of 0% to -2%. Delta also expects to cover approximately $3 Billion of the estimated $4 Billion raw impact of higher fuel input costs in Fiscal 2008 and expects to end  2008 with a liquidity position of about $3.2 Billion.

The company claimed 49% of its fuel consumption was hedged at $3.13 per gallon and said it realized a $313 million gain from its hedges.  Here is its fuel hedge position:
Q3 2008        48%         $2.94
Q4 2008        46%         $3.42
FY 2009        21%         $3.48
FY 2010        5%          $3.05

Delta said it plans to close its merger with Northwest (NYSE: NWA) by the end of 2008.  Shares of Delta are up nearly 5% at $4.90 in pre-market trading since the company is not sounding off the death of itself.  This also has Northwest shares up about 2.2% pre-market at $5.51.

Jon C. Ogg
July 16, 2008