It has been about a month since the last earnings report for Delta Air Lines (DAL). Shares have added about 10.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Delta due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wider-Than-Expected Loss in Q3
The company incurred a loss (excluding $5.17 from non-recurring items) of $3.30 per share in the September quarter, wider than the Zacks Consensus Estimate of a loss of $3.14. Meanwhile, Delta reported earnings of $2.32 per share (on an adjusted basis) in the year-ago quarter, driven by high passenger revenues as air-travel demand was buoyant at that time.
With the health peril showing no signs of subsiding, passenger revenues continued to be weak in the September quarter declining 83% year over year to $1,938 million. Cargo revenues declined 25% to $142 million. Revenues from other sources increased 2% to $982 million. Consequently, total revenues in the September quarter tanked 76% to $3,062 million, falling short of the Zacks Consensus Estimate of $3,091.3 million.
Other Financial Details for Q3
Revenue passenger miles (a measure of air traffic) tumbled 83% to 11,545 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 63% to 28,290 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 41% from 88% a year ago. Passenger revenue per available seat mile (PRASM) too took a 55% dive year over year to merely 6.85 cents. Passenger mile yield decreased to16.78 cents from 17.07 cents in the third quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the third quarter deteriorated 43% year over year to 9.35 cents.
Total operating expenses including special items declined 10% year over year to $9,448 million. Notably, expenses on aircraft fuel and related taxes plunged 78% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed moderated 66% to $391 million. Average fuel price per gallon (adjusted) declined 36% to $1.25. Operating cost per available seat mile increased to 33.4 cents from 13.85 cents a year ago due to the capacity cuts. Non-fuel unit cost increased 57% in the reported quarter.
The airline had liquidity worth $21.6 billion at the end of the June quarter. Notably, during the quarter, cash used in operations was $2.6 billion. Adjusted net debt was $17 billion at the end of the reported quarter. Daily cash burn averaged $18 million for the month of September and $24 million for the quarter. This represented an improvement from the June quarter where daily cash burn averaged was $43 million. The reading was $27 million for the month of June. In the September quarter, Delta received $701 million under the payroll support program of the CARES Act, through grants ($491 million) and loans ($210 million).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -16.3% due to these changes.
Currently, Delta has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Delta has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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