Delta (DAL) Down 13.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Delta Air Lines (DAL). Shares have lost about 13.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Delta due for a breakout? 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.

Narrower-Than-Expected Loss in Q1

Delta's first-quarter 2022 loss (excluding 25 cents from non-recurring items) of $1.23 per share was narrower than the Zacks Consensus Estimate of a loss of $1.28. With omicron hampering travel plans in the early part of the first quarter of 2022, the carrier incurred loss after reporting earnings in the last two quarters of 2021. However, with the threat of the omicron variant subsiding, air-travel demand was exceptionally strong in the month of March. Upbeat demand led to DAL earning profit in the month of March with adjusted operating margin reaching almost 10%.

Coming back to first-quarter 2022 results, Delta’s revenues came in at $9,348 million, which not only beat the Zacks Consensus Estimate of $9,063.5 million but also soared in excess of 100% from the year-ago figure. The uptick in air-travel demand in the United States can be gauged from the fact that 80.5% of first-quarter 2022 passenger revenues came from the domestic markets.

Despite the year-over-year improvement in air-travel demand (particularly for leisure) in the United States as more and more Americans get vaccinated, the overall picture remains unfavorable when compared to the first-quarter 2019 scenario, mainly due to the softness in business and international travel. Consequently, passenger revenues plunged 25% from the levels recorded in the comparable quarter of 2019 to $6,907 million.

Cargo revenues surged 51% to $289 million. This was the sixth consecutive quarter when cargo revenues increased from the comparable periods’ levels in 2019. Cargo revenues in the reported quarter were boosted by strong demand and favorable yields. Revenues from other sources climbed significantly to $2,152 million. Total revenues in the March quarter declined 11% from the first-quarter 2019 level.

Adjusted operating revenues (which exclude third-party refinery sales) came in at $8.2 billion. This reflected a 79% recovery from the first-quarter 2019 level. First-quarter 2022 capacity was 83% restored compared with the first-quarter 2019 level. Domestic and international passenger revenue were restored 83% and 54%, respectively.

Other Financial Details of Q1

Below we present all comparisons (in % terms) with first-quarter 2019 (pre-coronavirus levels).

Revenue passenger miles (a measure of air traffic) tumbled 25% to 38,700 million. Capacity (measured in available seat miles) contracted 17% to 51,810 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 75% from 83% in the comparable quarter of 2019.

Passenger revenue per available seat mile (PRASM) declined 10% to 13.33 cents. Passenger mile yield decreased to 17.85 cents from 17.93 cents in the first quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) deteriorated 5% to 15.75 cents in the March quarter.

Total operating expenses including special items increased 7% to $10,131 million. Aircraft fuel expenses and related taxes increased 6% in the reported quarter. Fuel gallons consumed decreased 22% to $751 million. With oil price moving north, average fuel price per gallon (adjusted) increased 37% to $2.79. Non-fuel unit cost increased 15% in the reported quarter.

The airline had liquidity worth $12.8 billion at the end of the March quarter (including cash and cash equivalents, short-term investments and undrawn revolving credit facilities). Delta had total debt and finance lease obligations of $25.6 billion with adjusted net debt of $20.9 billion. Operating cash flow during the quarter was $1.8 billion. Free cash flow (after pumping in $1.6 billion into the business, primarily for aircraft purchases and modifications) was $197 million.

Q2 Outlook

All comparisons in percentage are made with second-quarter 2019.

Driven by upbeat demand, Delta gave a bullish outlook for the second quarter of 2022. Per Glen Hauenstein, Delta's president. "In the June quarter, we are successfully recapturing higher fuel prices and expect our revenue recovery to accelerate to 93 to 97 percent with unit revenue up double digits compared to 2019." Operating margin (adjusted) for the June quarter is anticipated to be in the 12-14% range, compared with second-quarter 2019.

The carrier expects to operate at 84% of the second-quarter 2019 capacity. Non-fuel unit costs are expected to increase 17% from the second-quarter 2019 actuals. Gross capital expenditures and adjusted net debt are likely to be $1.2 billion and $20 billion, respectively, in the June quarter. Management also expects fuel price per gallon in the $3.20-$3.35 range.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 159.48% due to these changes.

VGM Scores

At this time, Delta has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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