A month has gone by since the last earnings report for Delta Air Lines, Inc. DAL. Shares have added about 12.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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.
First Quarter Earnings
Delta’s first-quarter earnings (excluding special items) of $0.77 per share beat the Zacks Consensus Estimate of $0.73. However, the bottom line contracted 41.7% on a year-over-year basis due to higher costs. Operating revenues came in at $9,148 million, below the Zacks Consensus Estimate of $9,155.9 million. Revenues declined 1.1% from the year-ago figure. During the quarter, passenger revenues, cargo revenues and others declined 1%, 1.2% and 2%, respectively, on a year-over-year basis. Average fuel price (adjusted) was up 28.6% to $1.71 per gallon.
Revenue passenger miles (a measure of air traffic) increased marginally to 48 billion. Capacity or available seat miles contracted 0.5% to 57.9 billion. Load factor (percentage of seats filled by passengers) improved 80 basis points year over year to 82.9% as traffic expanded, while capacity contracted in the quarter. Passenger revenue per available seat mile (PRASM) dipped 0.5% year over year . Also, passenger mile yield declined 1.4%.
Total operating expenses, including special items, climbed 5% year over year to $8,095 million. Consolidated unit cost or cost per available seat mile (CASM), including profit sharing, increased 5.8%, mainly due to the recent labor deals inked by the company.
At the end of the first quarter, Delta had $1.9 billion in cash and cash equivalents and adjusted net debt of $8.8 billion. The carrier generated $0.7 billion of adjusted operating cash flow in the quarter (excluding the $1.5 billion pension contribution).
For the second quarter of 2017, the carrier expects operating margin in the range of 17% to 19%. The estimated fuel price, including taxes and refinery impact, is projected to be in the range of $1.68 to $1.73 per gallon. Also, system capacity is expected to be flat to up 1% on a year-over- year basis. Moreover, Delta expects passenger unit revenue to increase in the band of 1% to 3% (on a year-over-year basis). Cost per Available Seat Mile, (including profit sharing) is also anticipated to increase in the band of 6% to 8% in the second quarter, mainly due to higher labor costs.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter compared to one higher.
Delta Air Lines, Inc. Price and Consensus
Delta Air Lines, Inc. Price and Consensus | Delta Air Lines, Inc. Quote
At this time, Delta's stock has a subpar Growth Score of 'D', while it is doing a bit better on the momentum front with 'C'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is more suitable for value than momentum based on our styles scores.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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