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Delta (DAL) Stock Down Despite Q3 Earnings Beat: Here's Why

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Delta Air Lines’ (DAL - Free Report) third-quarter 2021 earnings (excluding $1.59 from non-recurring items) of 30 cents per share outpaced the Zacks Consensus Estimate of 15 cents. Results came against the year-ago quarter’s loss of $3.30 per share. Good news is that the airline behemoth delivered earnings for the first time in the September quarter of 2021 after suffering six successive quarterly losses due to COVID-induced passenger revenue weakness.

Despite such an upbeat bottom-line performance, shares of Delta declined in early trading. The downside was mainly due to the commentary on the rising fuel prices by the carrier’s CEO Ed Bastian. Per Bastian, “the recent rise in fuel prices will pressure our ability to remain profitable for the December quarter”.

Fuel price per gallon in the December quarter is projected in the $2.25-$2.40 range. Increasing fuel cost may threaten the carrier’s performance in the fourth quarter despite the uptick in air-travel demand.

Coming back to the third-quarter 2021 performance, Delta’s revenues came in at $9,154 million, which not only beat the Zacks Consensus Estimate of $8,370.6 million but also soared in excess of 100% from the year-ago figure as air-travel demand (mainly for leisure) improves after remaining tepid due to the highly contagious Delta variant of COVID-19.

Bastian reportedly said: “We are seeing bookings pick up materially over the past four or five weeks. As the variant has receded, people are starting to get back out.” The carrier witnessed corporate demand of roughly 40% of the third-quarter 2019 actuals in the quarter under discussion.

Despite the recent uptick 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 third quarter of 2019, mainly due to the softness in business and international travel. Consequently, passenger revenues plunged 37% from the levels recorded in the comparable quarter of 2019 to $7,191 million.

The improvement in air-travel demand in the United States can be gauged from the fact that 80% of the third-quarter 2021 passenger revenues came from the domestic markets.

Cargo revenues surged 39% to $262 million. This was the fourth consecutive quarter when cargo revenues increased from the comparable periods’ levels in 2019. Revenues from other sources climbed 77% to $1,701 million. Total revenues in the September quarter declined 27% to $9,154 million from the third-quarter 2019 level.

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

Delta Air Lines, Inc. Price, Consensus and EPS Surprise

Delta Air Lines, Inc. price-consensus-eps-surprise-chart | Delta Air Lines, Inc. Quote

Other Financial Details of Q3

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

Revenue passenger miles (a measure of air traffic) tumbled 36% to 43,057 million. Capacity (measured in available seat miles) contracted 29% to 54,083 million. With the fall in traffic outpacing the capacity reduction, load factor (percentage of seats filled by passengers) was down to 80% from 88% in the comparable quarter of 2019.

Passenger revenue per available seat mile (PRASM) declined 12% to 13.3 cents. Passenger mile yield decreased to 16.7 cents from 17.07 cents in the third quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) in the September quarter deteriorated 7% to 15.31 cents.

Total operating expenses including special items declined 34% to $6,949 million. Expenses on aircraft fuel and related taxes slumped 31% in the reported quarter. Fuel gallons consumed decreased 32% to $789 million. Average fuel price per gallon (adjusted) dipped 1% to $1.94. Non-fuel unit cost increased 15% in the reported quarter.

The airline had liquidity worth $15.8 billion at the end of the September quarter (including cash and cash equivalents, short-term investments and undrawn revolving credit facilities). The company, currently carrying a Zacks Rank #4 (Sell), had total debt and finance lease obligations of $27.8 billion with adjusted net debt of $19.3 billion. Operating cash flow during the quarter was $151 million. Free cash flow for the reported quarter was a negative $463 million.

You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Q4 Outlook

All comparisons in percentage are made with fourth-quarter 2019. For the fourth quarter of 2021, the carrier, which operated at 71% of the third-quarter 2019 capacity in the September quarter, expects to do so at 80% of the fourth-quarter 2019 capacity. The carrier anticipates generating total revenues in the low 70s (in percentage terms) compared with the fourth-quarter 2019 actuals, driven by upbeat holiday demand and an expected betterment in corporate and international demand. Non-fuel unit costs in fourth-quarter 2021 are expected to increase in the 6-8% band from the fourth-quarter 2019 actuals.

Capital expenditures and adjusted net debt are likely to be $1.2 billion and $22 billion, respectively, in the December quarter. Management also expects its cargo unit to continue performing better in the December quarter than the fourth-quarter 2019 levels.

Impending Airline Releases

Investors interested in the Zacks  Airline  industry will look forward to the third-quarter 2021 earnings reports of United Airlines (UAL - Free Report) , Alaska Air Group (ALK - Free Report) and American Airlines (AAL - Free Report) . While United Airlines will report results on Oct 19, Alaska Air and American Airlines will release the same on Oct 21.