The Henry Fund Henry B. Tippie School of Management Sam Norman [samuel-norman@uiowa.edu] Delta Airlines, Inc. (DAL) October 18, 2017 Industrials Full-Service Airlines Stock Rating Sell Investment Thesis Target Price $52-56 Henry Fund DCF $55.97 Henry Fund DDM $52.31 Relative Multiple $52.65 Price Data Current Price $52.76 52wk Range $39.05 55.75 Consensus 1yr Target $63.29 Key Statistics Market Cap (B) $37.62 Shares Outstanding (M) 724.03 Institutional Ownership 94.0% Five Year Beta 1.252 Dividend Yield 2.31% Est. 5yr Growth 5.00% Price/Earnings (TTM) 11.00 Price/Earnings (FY1) 9.64 Price/Sales (TTM) 0.95 Price/Book (mrq) 2.69 Profitability Operating Margin (TTM) 14.68% Profit Margin (TTM) 8.97% Return on Assets (TTM) 7.05% Return on Equity (TTM) 27.36% Delta Airlines has proven to be an industry-leading operator among full-service air carriers. However, we believe that continued competition from low-cost carriers will limit growth in passenger yields and revenue. These expectations, coupled with our projections for rising oil prices, point to limited value at the company s current share price of $52.76. Drivers of Thesis We project that total revenue will grow at a CAGR of 3.23% through 2021 driven by 2.5% annual capacity growth beginning in 2018 and 4-10% annual growth in fee-related revenue Our model assumes that Delta s load factor will remain constant at 84.6% throughout the forecast horizon, as rising demand for air travel is offset by aggressive industry capacity growth We believe that revenue growth will be limited by continued price competition, particularly from low-cost carriers. However, our model assumes that Delta s passenger yield will still rise at a modest rate of 0.5% annually due to strong demand for air travel. We project that oil prices will rise to roughly $57 per barrel by 2021, which will increase fuel expense and limit profitability. Rising oil prices are especially a threat due to the company s abandonment of its traditional hedging activities. Risks to Thesis Stronger-than-expected demand, capacity shortages, or an improvement in industry pricing power would counteract our expectations for sluggish yield growth Any sustained decline in oil prices would lead to stronger-than-expected performance, as our model includes expectations for gradually rising oil and jet fuel prices throughout the forecast horizon 11.0 10.7 Earnings Estimates 5.0 5.5 5.8 Year 2013 2014 2015 2017E 2018E 2019E 0.0 EPS $0.80 $5.81 $5.98 $4.99 $5.41 $5.58 P/E ROE EV/EBITDA growth (93.5%) 627.8% 3.0% (16.7%) 8.4% 3.2% Source: Bloomberg 12 Month Performance Company Description 40% 30% 20% DAL S&P 500 Delta Airlines provides scheduled air transportation for passengers and cargo over a network of routes throughout the United States and internationally. The company serves roughly 320 destinations in 60 countries and operates a mainline fleet of over 800 aircraft while also 10% 0% -10% maintaining international alliance relationships with over 20 foreign airlines. In addition to passenger and cargo revenue, Delta earns ancillary revenue through loyalty programs, O N D J F M A M J J A S baggage fees, in-flight sales, and its wholly owned Source: Yahoo Finance oil refinery subsidiary, Monroe Energy, LLC. 35.0 30.0 25.0 20.0 15.0 10.0 Important disclosures appear on the last page of this report. DAL Industry Sector 27.4 28.9 21.4 20.4 13.1
EXECUTIVE SUMMARY Delta Airlines has consistently outperformed other U.S. full-service air carriers in terms of unit revenue and operating margins. We expect this trend to continue in the future, as the company maintains industry-best customer service, in-flight amenities, and loyalty programs. However, we believe that full-service carriers will continue to face pressure from low-cost carriers that will limit growth in passenger yields. We also believe that steadily rising oil prices will erode the industry s profit margins throughout the forecast horizon, as growing seat mile capacity will increase price competition among competitors and limit firms ability to pass rising fuel costs to customers. Based on these expectations, we believe that the company s current stock price of $52.76 leaves little room for upside based on our target price of $52-56. COMPANY DESCRIPTION Delta Airlines is the world s largest airline by market capitalization and maintains a presence in every major domestic and international market. The company faces competition from other traditional full-service carriers, national point-to-point carriers, and numerous domestic and international discount carriers. DAL competes most directly with traditional full-service carriers American Airlines (AAL) and United Airlines (UAL), but also faces significant competition from Southwest Airlines (LUV), the world s largest low-cost air carrier. The following chart provides more information about the industry s largest competitors. DAL UAL AAL LUV Market Cap ($B) 37.6 20.5 25.4 31.7 Revenue (TTM - $B) 40.5 37.4 41.1 21.0 Available Seat Miles (B) 251.9 253.6 273.4 148.5 Source: Bloomberg The company earns revenue through three reportable segments: Passenger, Cargo, and Other. The following chart shows each segment s contribution to total revenue in fiscal 2016. For forward valuation, our analysis examined each of these segments separately due to their unique growth drivers. Passenger Revenue Passenger revenue is earned by collecting travel fares on the company s domestic and international air transportation routes 1. Passenger revenue accounted for roughly 85% of total revenue in 2016 and has grown at a 3-year CAGR of 0.84% since 2013 1. The following chart shows the geographical breakdown of total passenger revenue in fiscal 2016. Growth in this segment is reliant on growth in airline capacity and pricing power. Capacity growth, often measured by growth in available seat miles (ASMs), is driven by demand for air transportation. Demand for air travel is generally measured by growth in revenue passenger miles (RPMs) and is largely driven by overall economic activity. Airline RPMs and revenue have closely tracked GDP growth in recent years, as shown in the following chart. Page 2
U.S. Airline Revenue and GDP, Q1 2003-Q2 2016 Source: Oliver Wyman Airline Economic Analysis Over the medium and long-term, expectations for a growing U.S. and world economy provide the basis for long-run aviation traffic growth 2. We project that domestic and worldwide GDP will grow by roughly 3% through 2019 and 2-2.5% in 2020 and 2021, which points towards continued growth in RPMs for airlines in the future. The Federal Aviation Administration (FAA) projects that domestic and international passenger growth for U.S. carriers will average 1.9% annually over the next twenty years. The FAA also projects that total U.S. carrier RPMs will grow by 2.4% annually through 2037, driven by 2.0% growth in domestic RPMs and 3.4% growth in international RPMs 2. The FAA expects growth in ASMs to generally track growth in RPMs. The FAA s RPM and ASM projections are summarized in the following charts. Source: FAA Aerospace Forecast (2017-2037) During the company s 3Q 2017 earnings call, Delta s management team indicated that available seat mile growth will be limited to 1% in 2017 due to the company s strict focus on improving internal efficiency throughout the year 3. However, management also indicated that it expects capacity to grow by 2-3% annually for the foreseeable future beginning in 2018. We believe that these projections are achievable given expectations for market demand. Our model predicts that available seat miles will grow by 1% in 2017 and 2.5% annually throughout the remaining forecast horizon. In addition, our model assumes that Delta s current load factor (RPMs divided by ASMs) of 84.6% will remain constant throughout the forecast horizon as ASMs increase at the rate of RPM growth. We believe that this assumption is reasonable given that Delta s load factor has remained between 83.8% and 84.9% since 2012 as shown in the chart below. Source: FAA Aerospace Forecast (2017-2037) In addition to capacity growth, passenger revenue growth is reliant on an airline s revenue earned per RPM, also Page 3
ASMs, RPMs Passenger Mile Yield known as passenger mile yield. Yields can be volatile in the short run in response to capacity constraints and demand spikes. However, the FAA predicts that total airline system yields will normalize to an annual growth rate of 2.1% from 2017-2037 2. We believe that low-cost carriers (LCCs) will benefit from the majority of yield growth through 2021, as these airlines have shown the ability to more effectively capture passenger yield in recent quarters. This trend is shown in the following chart. Passenger Yield Trends, Q1 2006-Q2 2016 Cargo Revenue Delta generates cargo revenue using cargo space on regularly scheduled passenger aircraft. Cargo revenue accounted for roughly 2% of total revenue in 2016 and has declined at a compound annual rate of 10.6% since 2013. Growth in air cargo generally tracks economic growth. However, air cargo is increasingly being carried by dedicated freight aircraft as passenger-focused airlines seek to minimize aircraft size and maximize fuel efficiency. Our model assumes that cargo revenue will decline by 5% annually throughout the forecast horizon, as the company continues to focus its efforts on its main business lines. Other Revenue Source: Oliver Wyman Airline Economic Analysis We believe that DAL will struggle to achieve the FAA s predicted system yield growth of 2.1% annually, as industry capacity grows and yield growth continues to be captured by LCCs. However, our model assumes that Delta s passenger mile yield will grow by a modest rate of 0.5% annually throughout the forecast horizon due to increasing demand for air travel. A summary of our model assumptions for capacity and yield is provided in the chart below. This segment consists of revenue earned from loyalty programs, administrative fees, on-board sales, and baggage fees, as well as revenue from several ancillary revenue streams including aircraft maintenance, repair, staffing, vacation wholesale, and private jet operations. In addition, the company s wholly owned subsidiary, Monroe Energy, earns revenue from operating an oil refinery near Philadelphia, Pennsylvania 1. Other revenue accounted for roughly 13.1% of company revenue in 2016 and has grown at a 3-year CAGR of 10.1% since 2013 1. The following chart provides information about the composition of other revenue by source. DAL Capacity and Yield, 2014-2021E ASMs RPMs Passenger Mile Yield 300,000 $0.1750 250,000 200,000 150,000 100,000 50,000 0 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Source: DAL 10-K, Henry Fund Estimates $0.1700 $0.1650 $0.1600 $0.1550 $0.1500 Page 4 DAL s Monroe Energy refinery produces gasoline, diesel, and jet fuel 1. The company exchanges non-jet fuel products with third parties for jet fuel 1. The Monroe refinery is mainly used to supply airline operations throughout the northeastern U.S., including DAL s New York Hubs at LaGuardia and JFK airports. Monroe produced or procured approximately 175,000 barrels of jet fuel per day in 2016, roughly 60-70% of the company s
daily domestic jet fuel usage 1,18. DAL s management team believes that Monroe Energy slightly reduces the company s market price of jet fuel by eliminating the refiner s margin while also ensuring adequate fuel supply for key operational hubs (see company analysis for more fuel cost analysis). The refinery also produces revenue through the sale of excess non-jet fuel products, which we expect to grow slightly throughout the forecast horizon as oil prices rise. However, we believe that growth in Other Revenue will be driven primarily by growth in fee-related revenue. Growing fee-related revenue is a continuing trend in the airline industry, as competitors increasingly unbundle service offerings to reduce passenger fares (see markets and competition section for more details) 4. The following chart shows the growth of airline service fees since 2007. System Service Fees, Q1 2007-Q2 2016 Revenue Estimates, 2017-2019 ($mm) 2017 2018 2019 Henry Fund Estimates 40,630 42,092 43,619 Analyst Consensus 40,898 42,432 43,832 Source: Bloomberg, Henry Fund Estimates Company Analysis Delta has consistently outperformed competitors in terms of unit revenue in recently years. This outperformance is maintained through best-in-class service and in-flight perks like internet accessibility. In addition, the company commands higher fares due to its SkyMiles rewards program, which is generally considered to be the best rewards program among U.S. full-service carriers 1. The following chart shows the unit revenue performance of DAL s peer group in recent years. Passenger Revenue Per Available Seat Mile ($c) 2014 2015 2016 3-Year Avg. DAL 14.58 14.10 13.41 14.03 UAL 13.72 13.11 12.40 13.08 AAL 13.97 13.21 12.65 13.28 LUV 13.48 13.02 12.52 13.01 Source: Bloomberg Source: Oliver Wyman Airline Economic Analysis In 2015, Delta became the first American full-service airline to introduce a Basic Economy class, which provides lower fares in exchange for fewer in-flight perks. Basic Economy has allowed Delta to compete more effectively with emerging LCCs and collect a growing amount revenue from fees related to baggage, seat selection, and on-board purchases. We expect fee revenue to continue growth throughout the forecast horizon, as Delta continues to offer unbundled services to compete with LCCs. Our model assumes that other revenue will grow by 10% in 2017, 8% in 2018 and 2019, 6% 2020, and 4% in 2021 driven mainly by growth in fee-related revenue. The following chart compares our revenue estimates with analyst consensus revenue estimates for fiscal years 2017-2019. The factors that allow DAL to maintain industry-leading unit revenue figures also contribute to the industry s highest unit cost structure. The following chart provides more detail about unit costs for the largest U.S. airlines. Total Cost Per Available Seat Mile ($c) 2014 2015 2016 3-Year Avg. DAL 15.92 13.33 12.98 14.08 UAL 14.85 13.08 12.70 13.54 AAL 14.45 12.94 12.76 13.38 LUV 12.50 11.18 11.22 11.63 Source: Bloomberg Delta maintains the industry s highest fuel cost per ASM despite its ownership of the Monroe Energy refinery. However, Delta s management team has indicated the company s fuel cost expense is still lower than it would be without benefits provided by the Monroe refinery 1. The Page 5
following chart shows fuel cost per available for the industry s largest participants. LCC Share of Worldwide Seat Capacity, 2006-2016 Fuel Cost Per Available Seat Mile ($c) 2014 2015 2016 3-Year Avg. DAL 4.87 3.07 2.38 3.44 UAL 4.75 3.01 2.29 3.35 AAL 4.74 2.77 2.26 3.26 LUV 4.04 2.57 2.46 3.02 Source: Bloomberg Delta s unit revenue outperformance has allowed the company s operating margins to exceed those of other traditional full-service airlines. However, LUV s significant unit cost advantage leads to the highest operating margin among large U.S. airlines. The following chart shows recent operating margin performance for DAL and its peer group. Competitor Operating Margins, 2014-2016 2014 2015 2016 3-Year Avg. DAL 5.47% 19.17% 17.54% 14.06% UAL 6.10% 13.64% 11.87% 10.54% AAL 9.96% 15.14% 13.15% 12.75% LUV 11.96% 20.77% 18.41% 17.05% Source: Bloomberg Full-service carriers like Delta lost significant market share to LCCs during the decade prior to 2014. However, the penetration of LCCs has slowed from 2014-2016, as falling fuel prices have allowed full-service carriers to more effectively compete on price. In addition, full-service airlines have innovated new service offerings to compete with services offered by LCCs (i.e. Delta s Basic Economy class). Despite slowing market penetration, LCCs accounted for roughly 25% of the world s air travel market in 2016. Source: Statista We believe that LCCs will continue to play an integral part in shaping the competitive landscape of the airline industry by limiting yield growth for full-service carriers. However, we believe that the LCC model is not suitable for long-haul routes where traditional LCC efficiencies such as higher seat density, lower on-board service quality, and higher plane utilization are not as feasible. Our model assumes that Delta s passenger mile yield will grow at a modest rate of 0.5% throughout the forecast horizon, as strong demand for air travel is combatted by price competition from LCCs in short and medium-haul routes. However, we believe that Delta will be able to maintain its load factor of 84.6% throughout the forecast horizon as full-service carriers continue to dominate long haul route networks. Fuel expense has historically been Delta s largest operating expense. However, this has changed since 2014 due to steadily falling oil and jet fuel prices 1. We project that oil prices will linearly rise from the current price of roughly $49 per barrel to a price of roughly $57 per barrel by 2021. Our model projects future fuel prices based on year-to-date fuel cost per gallon (including refineryrelated benefits) and expected growth in oil prices. We assume that growth in fuel expense will track growth in oil prices throughout the forecast horizon. The following chart shows our model s assumptions for fuel expense per ASM throughout the forecast horizon. Page 6
$ Cents 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Fuel Expense Per ASM, 2014-2021E Fuel Expense Per ASM 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Source: DAL 10-K, Henry Fund Estimates Delta currently targets non-fuel expense growth of less than 2% annually and the company s cost per available seat mile excluding fuel has grown at a CAGR of 0.9% since 2012 1. Our model assumptions result in non-fuel CASM growth at a CAGR of roughly 1.0% throughout the forecast horizon. Salaries and related expenses, Delta s largest non-fuel expense, increased from 21.6% of sales in 2015 to 25.3% of sales in 2016, primarily due to a newly ratified pilot contract. Pilots constitute the majority of the company s unionized labor and the new contract included an 18% increase in pilot wages 1. DAL s 2016 pilot contract becomes amendable in 2019 and we believe that continued growth in industry profitability may lead to further wage increases as contracts are renegotiated. However, we do not include this scenario in our model assumptions due to its speculative nature. Our EPS projections are included below and are compared to analyst consensus EPS figures for 2017-2019. EPS Projections, 2017-2019 2017E 2018E 2019E Henry Fund Estimates $4.99 $5.41 $5.58 Analyst Consensus $5.04 $5.59 $5.97 Source: Bloomberg, Henry Fund Estimates Overall, we believe that Delta and other full-service airlines will remain profitable in the next five years to due to relatively low oil prices and growing air traffic. In addition, we believe that Delta has a proven history as the industry s most efficient full-service operator and will continue to generate the highest margins among fullservice carriers. However, we believe that low-cost carriers will continue to pose a significant threat to unit revenue growth in the years to come. In addition, we believe that steadily rising fuel costs will tighten current industry margins throughout the forecast horizon. For these reasons, our EPS projections are slightly less optimistic than analyst consensus EPS estimates. Q3 2017 Earnings RECENT DEVELOPMENTS On October 11 th, 2017, Delta reported adjusted EPS of $1.57 for Q3 2017. This figure beat analyst consensus EPS estimates of $1.52 by 3.2% 5. Operating revenue increased 5.5% year-over-year despite a $140 million reduction due to Hurricane Irma. Growth in operating revenue was driven by year-over-year passenger unit revenue growth of 1.9% passenger and an 18.4% year-over-year increase in other revenue. In addition to strong Q3 performance, management indicated that it expects 2-4% unit revenue growth during Q4 5. We project that passenger yields for fiscal 2017 will be $0.1593. This represents an increase from the company s passenger yield of $0.1580 through the nine months ended September 30 th, 2017. We believe that this yield for fiscal 2017 is reasonable given management s guidance for continued growth in the fourth quarter. In addition, we believe that our annual capacity growth projections of 1% are reasonable given management s affirmation of these previously guided figures during the Q3 earnings call. Bombardier Tariff Dispute In September, The U.S. Commerce Department proposed tariffs that would potentially quadruple the price of Bombardier s C-Series planes for U.S. buyers. Tariff proposals come after complaints from Boeing that claim the Canadian aircraft manufacturer is benefiting from unfair government subsidies which allow for belowmarket price points for its C-Series aircraft. The proposed tariffs will not take effect unless approved by the U.S. International Trade Commission in early 2018 6. Delta has purchase commitments for 75 C-Series aircraft with deliveries slated to begin in the spring of 2018. Delta s management team indicated in its Q3 2017 earnings call that it does not expect to pay any tariffs on Bombardier C- Series aircraft orders, as Boeing does not manufacture a Page 7
competing jet and therefore experienced no competitive disadvantage 3. The general market consensus is that Boeing and the U.S. Commerce Department do not have a particularly strong case for the imposition of tariffs. Therefore, we believe that this event will have no material impact on Delta s financial performance and we have not incorporated tariffs in our valuation assumptions. Hurricanes and Network Disruption During Q3 2017, Delta incurred a $120 million reduction in pretax income due to network disruptions caused by Hurricane Irma hitting the Caribbean, Florida, and specifically the firm s main hub in Atlanta, Georgia 3. Delta also operated nine humanitarian flights, added more than 12,000 additional seats to impacted cities, and shipped more than 600,000 pounds of relief supplies. In addition, the Delta Airlines Foundation contributed $2.75 million to American Red Cross relief efforts 3. The network disruptions were quickly resolved and we believe that the reputational benefit of the firm s hurricane response will make up for all losses incurred. Hurricane-related events are not expected to have any long-term material impact. Delta will repurchase $1.25 billion worth of shares each year through 2021. Lastly, Delta has devoted significant capital to paying down its underfunded pension. Delta s management team has committed to funding $1.2 billion in pension liabilities in 2017 and aims to have the company s pension plan 80% funded by 2020. Further funding of the company s pension plan will promote capital structure flexibility, which has historically been more limited than that of competitors that emerged from bankruptcy (UAL and AAL). MARKETS AND COMPETITION The airline industry is mature and has been shaped by a series of significant mergers over the past decade. These mergers have yielded fewer and larger airlines that have demonstrated more discipline concerning fare levels and capacity expansion 8. These characteristics, coupled with falling fuel prices beginning in 2014, led to record profitability for the airline industry in 2016. U.S. Airline Industry Consolidation Improved Profitability INDUSTRY TRENDS The airline industry experienced record profitability in 2016, recording roughly $35.6 billion in annual profits 7. Record profitability comes at a time of low fuel prices that have widened margins for firms within an industry that has become adept at controlling costs. Improved profitability has allowed many airlines to aggressively return capital to shareholders. Delta began paying dividends in 2013 and has increased its dividend by at least 50% annually since. We project that dividends will grow by 5% annually throughout our forecast horizon, as the firm s history of 50% dividend growth is unsustainable in the long-run. In addition to dividends, Delta has returned significant capital to shareholders through share repurchases. The company repurchased more than $2 billion worth of shares in 2015 and 2016 and recently approved another $5 billion repurchase plan through 2020 1. We project that Source: PwC 2017 Commercial Aviation Trends Traditional full-service carriers continue to face fare pressure from the presence of LCCs. It is estimated that LCCs now account for 25% of all global flights and have shown to be particularly disruptive in markets for short and medium-haul flights. These routes allow for LCCs to exploit cost efficiencies through higher seat density, low Page 8
service costs, higher aircraft utilization, and lower staff compensation 9. The following chart shows LCC labor structures relative to those of full-service carriers. U.S. Carrier System Labor Unit Costs, 2014-2016 U.S. Airlines System Fuel Prices, 2009-2016 Source: Oliver Wyman Airline Economic Analysis We believe that LCCs will continue to be a transformative factor in the airline industry, suppressing passenger yields and limiting fare growth for traditional airlines. Traditional carriers have begun to offer more LCC-like services to more effectively compete on price, most notably through the introduction of a Basic Economy class. These service offerings seek to reduce fare prices at the expense of additional flight perks, including free baggage, seat choice, and cancellation refunds. Due to these service offerings, traditional carriers have experienced rapid growth in fee-related revenue. In addition to new service offerings, carriers seek to avoid ticket commoditization by offering personalized service through loyalty programs. Traditional airlines also hope to boost revenue by leveraging access to travelers to crosssell lodging, rental cars, and full vacation packages through direct sales channels. Constant fare pressure places a premium on cost control for industry participants. Historically, fuel was the industry s largest and most volatile operating expense. However, this has changed in recent years as steadily falling fuel prices have allowed for expanded operating margins and profitability. The following chart provides more detail about fuel cost trends within the airline industry. Source: Oliver Wyman Airline Economic Analysis Low fuel prices have also prompted several of the industry s largest players, including Delta Airlines, United Airlines, and American Airlines, to abandon fuel hedging programs 10. Decreased hedging activity leaves the industry more vulnerable to future increases in the price of jet fuel. Labor costs have replaced fuel costs as the industry s largest operating expense in recent years, as many industry participants have restructured contracts with pilot and flight attendant unions since 2014, a period of peak industry profitability. The following chart provides more detail about overall industry cost structures among traditional carriers and LCCs. U.S. System CASM by Group, Q2 2015/2016 Source: Oliver Wyman Airline Economic Analysis Page 9 Moving forward, we expect that firms will continue to compete mainly on price despite efforts to reduce the
commoditization of service offerings. We believe that this price competition will limit yield growth for both traditional airlines and LCCs. Our model assumes that Delta s passenger mile yield will grow at a modest rate of 0.50% throughout the forecast horizon, as strong demand for air travel is combatted by continued price competition among market participants. Peer Comparisons Important operating and valuation statistics for firms in DAL s peer group are shown below. DAL UAL AAL LUV Market Cap ($B) 37.62 20.54 25.36 31.74 Revenue (TTM - $B) 40.46 37.39 41.11 20.97 Average Fleet Age (Years) 17.00 13.90 10.00 10.90 Operating Margin (TTM) 14.68% 12.68% 11.81% 17.33% Debt to Total Assets 40.40% 46.61% 31.11% 12.70% Trailing P/E 11.00 8.38 10.02 15.23 Forward P/E 9.63 9.72 10.40 15.01 EV/EBITDA 5.06 4.86 5.97 6.56 Source: Bloomberg Delta has historically leveraged its superior customer relationships and loyalty program to achieve the highest operating margins among traditional full-service carriers. However, the company has been unable to replicate the operating margins of Southwest, the industry s operational gold standard. We believe that DAL will continue to outperform UAL and AAL but lag LUV in terms of margin performance. Therefore, we believe the market is fairly valuing industry peers based on relative multiple measures. DAL continues to be burdened by a $13.4 billion underfunded pension liability unlike competitors. This underfunded pension liability is effectively a form of debt and brings the company s debt-to-total assets ratio in line with UAL and AAL. However, the company plans to have its pension plan 80% funded by 2020 and has received multiple credit rating upgrades since 2014. These upgrades have given Delta an investment grade rating at each of the three main rating agencies 11. We believe that Delta will continue to be the best operational performer among U.S. full-service carriers in the years to come. However, we believe that the company will still struggle to match the margin performance of industry-leader Southwest. In addition, we believe that the industry has reached peak profitability and will soon become subject to stagnant passenger yields and steadily rising fuel costs. We believe that these factors will contribute to declining profitability over the forecast horizon. GDP ECONOMIC OUTLOOK Source: U.S. Bureau of Economic Analysis U.S. GDP grew by 3.1% in the second quarter of 2017, a sign of continued economic strength. As mentioned, demand for air travel is closely related to GDP growth in underlying markets. We project that GDP will continue to grow between 2.5-3% in the coming years due to growth in overall economic activity. Due to these GDP growth expectations, we believe that Delta s RPMs and ASMs will grow by an annual rate of 2.5% from 2018 through 2021. We also believe that GDP growth will allow modest annual growth in passenger mile yield of 0.5% despite continued fare pressure from LCCs. Interest Rates Ten-year treasury rates have risen throughout 2017 due to two Federal Reserve rate hikes and currently sit at 2.34%. We believe that the Federal Funds Rate will be increased once more in 2017 and twice in 2018. We believe that Page 10
these rate increases will bring the ten-year treasury rate to roughly 3.3-3.5% by the end of 2019. Oil Prices Rising interest rates have the potential to slow economic growth, which is closely related to airline traffic. However, we believe that rate increases will only occur if economic indicators remain strong. In addition, we believe that the market expects rate increases in 2018 and is already including these increases into its economic expectations. Therefore, we believe that rising interest rates will have little effect on the economy s ability to achieve our growth expectations of 2.5-3% throughout the forecast horizon. Unemployment Unemployment Rate, Seasonally Adjusted Source: Nasdaq Oil prices are critical for Delta and other industry participants, particularly given firms decisions to forego fuel hedging programs. We believe that oil prices will rise steadily over the next five years to roughly $57 by 2021. Our model incorporates these expectations by assuming Delta s fuel expense will grow proportionally to growth in underlying oil prices. We assume that oil prices will grow linearly from current prices to a price of $57 per barrel by 2021. Source: U.S. Bureau of Labor Statistics Unemployment is another key indicator of economic strength. U.S. unemployment declined to 4.2% in September despite non-farm payrolls declining by 33,000 jobs. We project that unemployment will steadily rise to 4.5-5% by the end of our forecast horizon. However, we believe that this increase in unemployment will have little material impact on the industry, as expected unemployment rates are still low relative to historical figures. In addition, slightly rising unemployment has the potential to mitigate labor cost pressure throughout the forecast horizon. INVESTMENT POSITIVES Delta Airlines is the strongest operator among U.S. full-service airlines, which we expect to continue in the foreseeable future We project that airline industry profitability will continue throughout the forecast horizon despite yield pressure and rising fuel costs The company benefits from a history of outstanding customer service, a strong in-flight experience, and the industry s best loyalty program INVESTMENT NEGATIVES We believe that unit revenue growth will slow in the coming years, as expanding capacity and competition from low-cost carriers suppresses yield growth Delta recently abandoned its fuel hedging program, which could hurt future profitability due to our expectations for rising oil prices Page 11
VALUATION Our revenue growth assumptions are based on the analysis detailed throughout previous sections of this report. Our segment-specific assumptions result in annual revenue growth of 2.5% in 2017, 3.6% in 2018 and 2019, 3.4% in 2020, and 3.1% in 2021. We project fuel prices based on our oil price expectations. We believe that oil prices will rise from current prices of roughly $49 to roughly $57 per barrel by 2021. Our model assumes that growth in fuel costs will track growth in underlying oil prices, which we assume increase linearly from current levels to $57 per barrel by 2021. Remaining operating expense items are forecasted based on historical levels (% of sales method). Analysis of historical financial statements indicates that these line items tend to vary with sales levels. Our model assumes that the company will grow its dividend by 5% annually throughout the forecast horizon. In addition, we expect that company to repurchase $1.25 billion worth of shares each year from 2017 through 2021, which is in-line with management s repurchase expectations. The previously disclosed dividend and repurchase assumptions result in a total payout ratio between 51-53% throughout the forecast horizon. Our revenue projections are slightly below consensus revenue estimates, which is reasonable given our expectations for lower-than-expected yield growth over the forecast horizon. Our EPS projections also fall below analyst consensus estimates, partially because of our less aggressive repurchase assumptions. We forecast capital expenditures based on management s guidance of normal capex of roughly $3.5 billion annually. These capex assumptions are in-line with analyst consensus capex assumptions throughout the forecast horizon. Delta s cost of debt is estimated using the YTM of a Delta corporate bond with a modified duration of six years, a similar timeframe as our five-year forecast horizon. We estimate the firm s cost of equity using the CAPM. We use the current 30-year treasury rate of 2.80% as a proxy for the risk-free rate. Our model assumes a beta of 1.252, which is the firm s five-year weekly beta. We also assume a market risk premium of 4.8%. Our DCF model yields a target price of $55.97 based on these assumptions. Relative valuation yields a target price of $52.65 based on competitor P/E multiples and our EPS estimates. We believe that the DCF model and relative valuation are the most appropriate measure of value for the firm. However, our DDM also yielded a similar target price of $52.31. Our final target price of $52-56 is below the analyst consensus target price of $63.29. Our target price is below analyst estimates mainly because of our less optimistic outlook for unit revenue growth, as well as our incorporation of rising oil prices throughout the forecast horizon. KEYS TO MONITOR Moving forward, the company s ability to capture passenger yield will be a key determinant for the firm s intrinsic value. We believe that the market is currently overly optimistic about the firm s unit revenue and expenses in the future, which lead to our expectations for lower-than-street profitability. The discrepancy is particularly strong towards the end of the forecast horizon. Our thesis may be proven wrong if the firm is able to significantly differentiate its product offerings and avoid intense price competition. However, we believe that this outcome is unlikely. Our recommendation is also based on expectations for rising jet fuel prices and compressed industry profitability. A lack of oil price appreciation or a significant decline in oil prices would be detrimental to our investment thesis. REFERENCES 1. DAL 2016 10-K 2. Federal Aviation Administration: Aerospace Forecast 2017-2037 3. DAL Q3 2017 Earnings Call 4. The Wall Street Journal: New Fares and Fees Seen Lifting Airline Revenues (2017) 5. The Wall Street Journal: Delta Airlines Announces September Profit (2017) 6. The Wall Street Journal: Delta Will Take Delivery of Bombardier Jets (2017) 7. The Wall Street Journal: Airline Profits Reach Record Highs before 2017 Descent (2016) 8. PwC: 2017 Commercial Aviation Trends 9. AT Kearney: Low Cost Air Travel Enters the Next Stage Page 12
10. The Wall Street Journal: Airlines Pull Back on Hedging Costs (2016) 11. DAL Press Release: Delta Achieves Third Investment Grade Credit Rating (2017) 12. Oliver Wyman: Airline Economic Analysis (2016/2017) 13. Bloomberg 14. Statista 15. U.S. Bureau of Economic Analysis 16. U.S. Bureau of Labor Statistics 17. Nasdaq 18. IHS Markit: Monroe Energy Case Study IMPORTANT DISCLAIMER Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report. Page 13
Delta Airlines, Inc. Revenue Decomposition Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Revenue Projections Passenger 34,954 34,782 33,777 34,282 35,318 36,382 37,478 38,607 Cargo 934 813 668 635 603 573 544 517 Other 4,474 5,109 5,194 5,713 6,170 6,664 7,064 7,347 Total revenue 40,362 40,704 39,639 40,630 42,092 43,619 45,086 46,471 YoY Growth Total passenger revenue 6.11% -0.49% -2.89% 1.50% 3.02% 3.01% 3.01% 3.01% Cargo revenue -0.32% -12.96% -17.84% -5.00% -5.00% -5.00% -5.00% -5.00% Other operating revenue 14.89% 14.19% 1.66% 10.00% 8.00% 8.00% 6.00% 4.00% Total revenue 6.85% 0.85% -2.62% 2.50% 3.60% 3.63% 3.36% 3.07% Passenger Revenue Projections Available seat miles 239,676 246,764 251,867 254,386 260,745 267,264 273,946 280,794 Load factor 84.67% 84.95% 84.61% 84.60% 84.61% 84.61% 84.61% 84.61% Revenue passenger miles 202,925 209,625 213,098 215,210 220,610 226,125 231,778 237,573 Passenger mile yield $0.1723 $0.1659 $0.1585 $0.1593 $0.1601 $0.1609 $0.1617 $0.1625 Total passenger revenue 34,954 34,782 33,777 34,282 35,318 36,382 37,478 38,607 YoY Growth Available seat miles 2.98% 2.96% 2.07% 1.00% 2.50% 2.50% 2.50% 2.50% Load factor 1.06% 0.33% -0.40% -0.01% 0.01% 0.00% 0.00% 0.00% Revenue passenger miles 4.07% 3.30% 1.66% 0.99% 2.51% 2.50% 2.50% 2.50% Passenger mile yield 1.96% -3.67% -4.47% 0.50% 0.50% 0.50% 0.50% 0.50% Total passenger revenue 6.11% -0.49% -2.89% 1.50% 3.02% 3.01% 3.01% 3.01% Segment Percentage of Total Revenue Total passenger revenue 86.6% 85.5% 85.2% 84.4% 83.9% 83.4% 83.1% 83.1% Cargo revenue 2.3% 2.0% 1.7% 1.6% 1.4% 1.3% 1.2% 1.1% Other operating revenue 11.1% 12.6% 13.1% 14.1% 14.7% 15.3% 15.7% 15.8% Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Delta Airlines, Inc. Income Statement ($mm) Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Total operating revenue 40,362 40,704 39,639 40,630 42,092 43,619 45,086 46,471 Salaries & related costs 8,120 8,776 10,034 10,285 10,655 11,041 11,413 11,763 Aircraft fuel & related taxes 11,668 6,544 5,133 6,774 6,884 7,291 7,709 8,141 Regional carriers expense 5,237 4,241 4,311 4,326 4,482 4,644 4,801 4,948 Contracted services 1,749 1,848 1,991 2,041 2,114 2,191 2,265 2,334 Depreciation & amortization 1,771 1,835 1,902 1,937 2,063 2,179 2,285 2,344 Aircraft maintenance materials & outside repairs 1,828 1,848 1,823 1,869 1,936 2,006 2,074 2,137 Passenger commissions & other selling expenses 1,700 1,672 1,710 1,753 1,816 1,882 1,945 2,005 Landing fees & other rents 1,442 1,493 1,490 1,527 1,582 1,640 1,695 1,747 Profit sharing 1,085 1,490 1,115 1,143 1,184 1,227 1,268 1,307 Passenger service 810 872 907 900 932 966 999 1,029 Aircraft rent 233 250 285 292 303 314 324 334 Restructuring & other items 716 35 - - - - - - Other operating expense 1,797 1,998 1,986 2,015 2,087 2,163 2,236 2,305 Operating income (loss) 2,206 7,802 6,952 5,769 6,053 6,076 6,073 6,077 Interest expense, net 650 481 388 415 424 432 434 437 Amortization of debt discount, net - - - - - - - - Loss on extinguishment of debt 268 - - - - - - - Miscellaneous, net 216 164 (72) - - - - - Income (loss) before income taxes 1,072 7,157 6,636 5,353 5,629 5,644 5,639 5,640 Income tax provision (benefit) 413 2,631 2,263 1,825 1,920 1,925 1,923 1,923 Net income (loss) 659 4,526 4,373 3,528 3,710 3,719 3,716 3,716 Year end shares outstanding - basic 825 779 731 707 686 666 648 632 Net earnings (loss) per share - basic $0.80 $5.81 $5.98 $4.99 $5.41 $5.58 $5.73 $5.88 Dividends per share $0.30 $0.46 $0.70 $0.73 $0.77 $0.81 $0.85 $0.89
Delta Airlines, Inc. Balance Sheet ($mm) Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Cash & cash equivalents 2,088 1,972 2,762 2,878 3,291 3,822 4,849 5,783 Short-term investments 1,217 1,465 487 499 517 536 554 571 Restricted cash, cash equivalents & short-term investments - - - - - - - - Accounts receivable, net 2,297 2,020 2,064 2,148 2,225 2,306 2,384 2,457 Hedge margin receivable 925 119 - - - - - - Fuel inventory 534 379 519 483 500 518 536 552 Expendable parts & supplies inventories, net 318 318 372 340 352 365 377 388 Hedge derivatives asset 1,078 1,987 393 - - - - - Deferred income taxes, net 3,275 - - - - - - - Prepaid expenses & other current assets 733 796 854 835 865 896 927 955 Total current assets 12,465 9,056 7,451 7,182 7,750 8,443 9,625 10,706 Property & equipment, net 21,929 23,039 24,375 25,958 27,415 28,756 29,490 30,166 Goodwill 9,794 9,794 9,794 9,794 9,794 9,794 9,794 9,794 Indentifiable intangibles, net 4,603 4,861 4,844 4,824 4,804 4,784 4,764 4,744 Deferred income taxes, net 4,320 4,956 3,064 2,421 1,779 1,136 493 - Other noncurrent assets 1,010 1,428 1,733 1,406 1,457 1,510 1,560 1,608 Total assets 54,121 53,134 51,261 51,585 52,998 54,422 55,727 57,018 Current maturities of long-term debt & capital leases 1,216 1,563 1,131 1,173 1,197 1,218 1,225 1,234 Air traffic liability 4,296 4,503 4,626 4,742 4,912 5,090 5,262 5,423 Accounts payable 2,622 2,743 2,572 2,636 2,731 2,830 2,925 3,015 Accrued salaries & related benefits 2,266 3,195 2,924 2,997 3,105 3,218 3,326 3,428 Hedge derivatives liability 2,772 2,581 688 - - - - - Frequent flyer deferred revenue 1,580 1,635 1,648 1,689 1,750 1,813 1,874 1,932 Taxes payable - - - - - - - - Fuel card obligation - - - - - - - - Other accrued liabilities 2,127 1,306 1,650 1,691 1,752 1,816 1,877 1,934 Total current liabilities 16,879 17,526 15,239 14,928 15,447 15,986 16,489 16,967 Long-term debt & capital leases 8,561 6,766 6,201 6,335 6,465 6,581 6,617 6,663 Pension, postretirement & related benefits 15,138 13,855 13,378 12,178 10,978 9,778 8,578 7,378 Frequent flyer deferred revenue 2,602 2,246 2,278 2,288 2,371 2,457 2,539 2,617 Deferred income taxes, net - - - - - - - - Other noncurrent liabilities 2,128 1,891 1,878 1,906 1,975 2,046 2,115 2,180 Total noncurrent liabilities 28,429 24,758 23,735 22,707 21,788 20,862 19,850 18,839 Common Stock 12,981 10,875 12,294 12,301 12,309 12,316 12,324 12,331 Retained earnings (accumulated deficit) 3,456 7,623 7,903 10,913 14,096 17,278 20,446 23,600 Accumulated other comprehensive income (loss) (7,311) (7,275) (7,636) (7,636) (7,636) (7,636) (7,636) (7,636) Treasury stock, at cost (313) (373) (274) (1,524) (2,774) (4,024) (5,274) (6,524) Total stockholders' equity (deficit) 8,813 10,850 12,287 14,055 15,995 17,935 19,859 21,771 Total liatilitries and stockholders' equity 54,121 53,134 51,261 51,691 53,231 54,782 56,198 57,577
Delta Airlines, Inc. Cash Flow Statement ($mm) Fiscal Years Ending Dec. 31 2012 2013 2014 2015 2016 Net income (loss) 1,009 10,540 659 4,526 4,373 Depreciation & amortization 1,565 1,658 1,771 1,835 1,902 Amortization of debt discount (premium), net 193 154 59 - - Fuel hedge derivative instruments 209 114 - - - Hedge derivative contracts - - 2,186 (1,366) (342) Deferred income taxes 17 7,991 414 2,581 2,223 Pension, postretirement & postemployment expense in excess of (less than) payments 208 624 (723) (1,013) (717) Equity-based compensation expense 54 - - - - Restructuring & other items 184 285 758 35 - Loss (gain) on extinguishment of debt 56-268 22 - Equity investment loss (earnings) - - 106 (35) (160) SkyMiles used pursuant to advance purchase under American Express Agreements 333 333 - - - Receivables 116 90 (302) (56) (147) Restricted cash & cash equivalents 51 231 62 7 (11) Fuel inventory 451 87 172 155 (140) Hedge margin - - (922) 806 81 Prepaid expenses & other current assets 134 28 58 (102) (26) Air traffic liability 216 426 174 207 123 Frequent flyer deferred revenue 115 121 (238) (301) 45 Profit sharing - - - 734 (383) Accounts payable & accrued liabilities 899 213 228 (201) 285 Other assets & liabilities 66 36 - - - Other operating activities, net 34 185 217 93 99 Net cash flows from operating activities 2,476 4,504 4,947 7,927 7,205 Property & equipment additions - flight equipment, including advance payments (1,196) (2,117) (1,662) (2,223) (2,617) Property & equipment additions - ground property & equipment, including technology (772) (451) (587) (722) (774) Purchase of short-term investments - - - - (1,707) Purchase of Virgin Atlantic shares - (360) - (500) - Purchase of investments (958) (959) (1,795) (998) - Redemption of investments 1,019 1,117 1,533 739 - Redemption of short-term investments - - - - 2,686 Acquisition of London-Heathrow slots - - - (276) - Proceeds for sales of E190 aircraft - - - - 226 Other investing activities, net (55) 14 48 25 31 Net cash flows from investing activities (1,962) (2,756) (2,463) (3,955) (2,155) Payments on long-term debt & capital lease obligations (2,864) (1,461) (2,928) (2,558) (1,709) Repurchase of common stock - (250) (1,100) (2,200) (2,601) Cash dividends - (102) (251) (359) (509) Fuel card obligation 137 147 - (340) 211 Payments on hedge derivative contracts - - - (71) (451) Proceeds from hedge derivative contracts - - - 429 291 Proceeds from long-term obligations 1,965 268 1,020 1,038 450 Debt issuance costs (41) - - - - Other financing activities, net 48 78 19 (27) 58 Net cash flows from financing activities (755) (1,320) (3,240) (4,088) (4,260) Net increase (decrease) in cash & cash equivalents (241) 428 (756) (116) 790 Cash & cash equivalents at beginning of year 2,657 2,416 2,844 2,088 1,972 Cash & cash equivalents at end of year 2,416 2,844 2,088 1,972 2,762
Delta Airlines, Inc. Forecasted Cash Flow Statement ($mm) Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E Net income 3,528 3,710 3,719 3,716 3,716 Depreciation & amortization 1,937 2,063 2,179 2,285 2,344 Short-term investments (12) (18) (19) (18) (17) Restricted cash, cash equivalents & short-term investments - - - - - Accounts receivable, net (84) (77) (81) (78) (73) Hedge margin receivable - - - - - Fuel inventory 36 (17) (18) (17) (16) Expendable parts & supplies inventories, net 32 (12) (13) (12) (12) Hedge derivatives asset 393 - - - - Deferred income taxes, net - - - - - Prepaid expenses & other current assets 19 (30) (31) (30) (28) Air traffic liability 116 171 178 171 162 Accounts payable 64 95 99 95 90 Accrued salaries & related benefits 73 108 113 108 102 Hedge derivatives liability (688) - - - - Frequent flyer deferred revenue 52 143 150 144 136 Taxes payable - - - - - Fuel card obligation - - - - - Other accrued liabilities 41 61 64 61 58 Deferred tax assets, net 643 643 643 643 493 Net cash from operating activities 6,150 6,838 6,982 7,068 6,954 Capital expenditures (3,500) (3,500) (3,500) (3,000) (3,000) Other noncurrent assets 327 (51) (53) (51) (48) Net cash from investing activities (3,173) (3,551) (3,553) (3,051) (3,048) Current maturities of long-term debt & capital leases 42 24 22 7 9 Long-term debt & capital leases 134 130 116 36 46 Pension, postretirement & related benefits (1,200) (1,200) (1,200) (1,200) (1,200) Other noncurrent liabilities 28 69 72 69 65 ESOP exercises 7 7 7 7 7 Share repurchases (1,250) (1,250) (1,250) (1,250) (1,250) Dividends paid (623) (654) (665) (659) (650) Net cash from financing activities (2,862) (2,874) (2,899) (2,990) (2,972) Net change in cash 116 413 531 1,027 934 Beginning cash 2,762 2,878 3,291 3,822 4,849 Ending cash 2,878 3,291 3,822 4,849 5,783
Delta Airlines, Inc. Common Size Income Statement Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Total operating revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Salaries & related costs 20.12% 21.56% 25.31% 25.31% 25.31% 25.31% 25.31% 25.31% Aircraft fuel & related taxes 28.91% 16.08% 12.95% 16.67% 16.36% 16.71% 17.10% 17.52% Regional carriers expense 12.98% 10.42% 10.88% 10.65% 10.65% 10.65% 10.65% 10.65% Contracted services 4.33% 4.54% 5.02% 5.02% 5.02% 5.02% 5.02% 5.02% Depreciation & amortization 4.39% 4.51% 4.80% 4.77% 4.90% 5.00% 5.07% 5.04% Aircraft maintenance materials & outside repairs 4.53% 4.54% 4.60% 4.60% 4.60% 4.60% 4.60% 4.60% Passenger commissions & other selling expenses 4.21% 4.11% 4.31% 4.31% 4.31% 4.31% 4.31% 4.31% Landing fees & other rents 3.57% 3.67% 3.76% 3.76% 3.76% 3.76% 3.76% 3.76% Profit sharing 2.69% 3.66% 2.81% 2.81% 2.81% 2.81% 2.81% 2.81% Passenger service 2.01% 2.14% 2.29% 2.22% 2.22% 2.22% 2.22% 2.22% Aircraft rent 0.58% 0.61% 0.72% 0.72% 0.72% 0.72% 0.72% 0.72% Restructuring & other items 1.77% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other operating expense 4.45% 4.91% 5.01% 4.96% 4.96% 4.96% 4.96% 4.96% Operating income (loss) 5.47% 19.17% 17.54% 14.20% 14.38% 13.93% 13.47% 13.08% Interest expense, net 1.61% 1.18% 0.98% 1.02% 1.01% 0.99% 0.96% 0.94% Amortization of debt discount, net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Gain (loss) on extinguishment of debt 0.66% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Miscellaneous, net 0.54% 0.40% -0.18% 0.00% 0.00% 0.00% 0.00% 0.00% Income (loss) before income taxes 2.66% 17.58% 16.74% 13.18% 13.37% 12.94% 12.51% 12.14% Income tax provision (benefit) 1.02% 6.46% 5.71% 4.49% 4.56% 4.41% 4.27% 4.14% Net income (loss) 1.63% 11.12% 11.03% 8.68% 8.81% 8.53% 8.24% 8.00%