Delta 4Q earnings drop 37% on higher labor costs, but beat expectations

Delta Air Lines reported a 37% decline in fourth-quarter earnings Thursday, as salaries rose 30% with a new labor agreement with pilots while passenger revenues declined slightly.

Still, net income for October, November and December of $622 million, or 84 cents per diluted share, beat analyst expectations of 82 cents per share, according to S&P Global Market Intelligence.

Jim Corridore, an analyst at CFRA Research, kept a “strong buy” recommendation for Delta because “we find improvement in unit revenues encouraging.”

Delta shares were down 3.3% to $49,73 per share by 11 a.m.

"We don’t comment on the moves hour by hour," said CEO Ed Bastian, when asked about the share slide. "I think the results came in generally in line with expectations."

Delta’s operating revenue of nearly $9.5 billion was down 0.4%, or $44 million, for the quarter. Passenger unit revenue declined 2.7% to nearly $8 billion on a 0.9% increase in capacity.

"Delta's commercial strategies and capacity actions combined with improving demand continue to drive benefit as we transition back into sustained positive unit revenues,” President Glen Hauenstein said in a statement.

Operating expenses grew 8% to $8.4 billion. The rise included a $656 million increase in salaries and related expenses, to nearly $2.9 billion.

The new labor contract with pilots increased costs $475 million, including $380 million in retroactive payments to the beginning of last year, according to Paul Jacobson, chief financial officer.

Delta also wrote off $75 million in Venezuelan currency because of political turmoil in that country and $10 million for initiatives to reduce the company’s debt.

But fuel expense continued to decline, at nearly $1.5 billion, 10% less than the same period a year earlier.

"Delta's cost and capital discipline has allowed us to consistently invest in our people and the customer experience, and do so in a way that keeps our unit cost growth manageable over time and generates sufficient cash flow for debt reduction and shareholder returns," Jacobson said.