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It has been about a month since the last earnings report for Delta Air Lines (DAL). Shares have added about 4.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
Wider-Than-Expected Loss in Q4
Delta incurred a loss (excluding $1.34 from non-recurring items) of $2.53 per share in the fourth quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.43. However, Delta reported earnings of $1.70 per share (on an adjusted basis) in the year-ago quarter.
With coronavirus cases noticing a spike again in the United States, passenger revenues continued to be weak in the December quarter, witnessing a 74% plunge year over year to $2,698 million. Although cargo revenues increased 10% to $204 million and revenues from other sources climbed 6% to $1,071 million, total revenues in the December quarter tanked 65% to $3,973 million. Revenues, however, topped the Zacks Consensus Estimate of $3,754.5 million. Apart from the revenue beat, another positive aspect of the earnings report in this coronavirus-ravaged scenario was that the daily cash burn halved to $12 million (on average) in the final quarter of 2020 from $24 million in the third quarter.
Other Financial Details of Q4
Revenue passenger miles (a measure of air traffic) tumbled 73% to 15,183 million. With Delta making significant capacity cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 44% to 36,569 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 42% from 86% a year ago.
Passenger revenue per available seat mile (PRASM) too took a 53% dive year over year to merely 7.38 cents. Passenger mile yield decreased to 17.77 cents from 18.29 cents in the fourth quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the December quarter deteriorated 44% year over year to 9.66 cents.
Total operating expenses including special items declined 52% year over year to $4,831 million. Notably, expenses on aircraft fuel and related taxes plunged 64% in the reported quarter. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed decreased 50% to $498 million. Average fuel price per gallon (adjusted) dropped 28% to $1.44. Non-fuel unit cost increased 8% in the reported quarter. The airline had liquidity worth $16.7 billion at the end of the December quarter. Notably, during the period, cash used in operations was $1.3 billion for the company.
For the full year, the carrier’s loss (on an adjusted basis) came in at $10.76 per share. Revenues decreased 64% year over year to $17.1 billion. The Zacks Consensus Estimate was of a loss of $10.68 per share while the same for revenues was $16.74 billion.
For the first quarter of 2021, the carrier expects total revenues to fall in the 60-65% range from the figure reported in the March quarter of 2019. Total operating expense is anticipated to be down between 35% and 40% from the year-ago quarter’s reported figure. Cost per Available Seat Mile (on an adjusted basis) is expected to be down in the 5-10% range from the number reported in the first quarter of 2019. Capital expenses are anticipated to be roughly $350 million. Average daily cash burn is expected in the $10-$15 million range. Liquidity (including the estimated PSP amount of $3 billion) is expected in the band of $18-$19 billion. Adjusted net debt is expected to be approximately $18 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -45.73% due to these changes.
At this time, Delta has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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. Notably, Delta has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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