Delta Air Lines first-quarter profit beats expectations

(Reuters) - Delta Air Lines Inc on Wednesday reported first-quarter profit that topped analysts' expectations and said it would reduce international capacity in the fourth quarter where a strong U.S. dollar has weakened demand.

While a strong U.S. dollar has dented demand abroad and concerned investors, Delta's unit revenue and capacity guidance painted a better picture than Wall Street had anticipated. The airline's stock rose more than 4 percent in early trading.

The Atlanta-based airline earned $746 million last quarter, more than triple its net income a year earlier. It earned $372 million on an adjusted basis, or $0.45 per diluted share, compared to analysts' average estimate of $0.44 per diluted share, according to Thomson Reuters I/B/E/S.

While a strong U.S. dollar has dented demand abroad and concerned investors, Delta's unit revenue and capacity guidance painted a better picture than Wall Street had anticipated. The airline's stock rose more than two percent in pre-market trading.

Delta said it expects passenger-unit revenue this quarter to fall 2 to 4 percent, while some had expected a decline of up to 5 percent.

The carrier said it expects its system-wide capacity to rise about 3 percent year-over-year this quarter. But facing markets hurt by the strong dollar and lower oil prices, Delta said it will reduce service from the Middle East, Africa, India, Japan and Brazil by at least 15 percent in the fourth quarter, totaling a 3-percent reduction of international capacity at that time.

"This is music to the ears of many investors," Cowen and Co analyst Helane Becker said in a research note. "This reduction in capacity should benefit (passenger-unit revenue) and reduce the negative foreign currency effect."

For the second quarter, Delta also said it expects an operating margin of 16 to 18 percent. It forecast that it will pay on average $2.35 to $2.40 per gallon of fuel, down from $2.93 per gallon last quarter.

Delta's 8.8 percent adjusted operating margin last quarter was in line with the 8-9 percent it projected earlier.

"While the strong dollar is creating headwinds with international revenues, it also contributes to the lower fuel prices which will offset those headwinds with over $2 billion in fuel savings this year," Chief Executive Officer Richard Anderson said in a news release.

The airline said the refinery it owns made a profit last quarter of $86 million.

Delta shares were up 4.2 percent at $4.88 after the open.

(Reporting By Jeffrey Dastin in Los Angeles; Editing by Alden Bentley)