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Why Is Delta (DAL) Up 14.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Delta Air Lines (DAL - Free Report) . Shares have added about 14.1% 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.

Earnings Miss at Delta in Q2

Delta's earnings (excluding 29 cents from non-recurring items) of $1.44 per share fell short of the Zacks Consensus Estimate of $1.71. Escalated operating expenses induced the earnings miss. Multiple flight cancellations in May and June also hurt results. In the year-ago quarter, Delta incurred a loss of $1.07 per share when air-travel demand was not as buoyant as in the current scenario.

Delta’s revenues came in at $13,824 million, which not only beat the Zacks Consensus Estimate of $13,608.9 million but also soared 94% from the year-ago quarter’s figure as air-travel demand rebounded from the pandemic lows. The uptick in air-travel demand in the United States can be gauged from the fact that 75.9% of second-quarter 2022 passenger revenues came from the domestic markets.

The buoyant air-travel demand scenario is also evident from the fact that total operating revenues increased 10% from second-quarter 2019 (pre-coronavirus) levels. Passenger revenues, accounting for 79.3% of the total revenues in the June quarter, declined 4% from the levels recorded in the comparable quarter of 2019 to $10,958 million. Cargo revenues surged 86% from the second-quarter 2019 actuals. This was the best-ever performance by the cargo unit in the second quarter of a year. Other revenues increased to $2,594 million from $982 million three years ago.

Adjusted operating revenues (which exclude third-party refinery sales) came in at $12.3 billion. This reflected a 99% recovery from the second-quarter 2019 level. Second-quarter 2022 capacity was 82% restored compared with the second-quarter 2019 level. Adjusted operating margin was 11.7%. This was the first quarter where DAL generated a double-digit operating margin since 2019. DAL remains on track to achieve its targets of more than $7 in adjusted earnings per share and $4 billion of free cash flow, set for 2024

Other Financial Details of Q2

Below we present all figures (in % terms) compared with the second-quarter 2019 results.

Revenue passenger miles (a measure of air traffic) tumbled 18% to 51,519 million. Capacity (measured in available seat miles) too contracted 18% to 58,903 million. Load factor (percentage of seats filled by passengers) was down to 87% from 88% in the comparable quarter of 2019.

Passenger revenue per available seat mile (PRASM) increased 17% to 18.60 cents. Passenger mile yield increased to 21.27 cents from 18 cents in the second quarter of 2019. On an adjusted basis, total revenue per available seat mile (TRASM) increased 20% to 20.90 cents in the June quarter.

Total operating expenses, including special items. escalated 18% to $12,305 million. Aircraft fuel expenses and related taxes surged 41% to $3,223 million in the reported quarter. Fuel gallons consumed contracted 22% to $863 million. Average fuel price per gallon (adjusted) surged 85% to $3.82. Non-fuel unit cost increased 22% to 12.76 cents in the reported quarter.

The airline had liquidity worth $13.6 billion at the end of the June quarter (including $2.8 billion in undrawn revolving credit facilities). Delta had an adjusted debt and finance lease obligations of $27.2 billion with adjusted net debt of $19.6 billion. Operating cash flow during the quarter was $2.5 billion. Free cash flow for the reported quarter was $1.6 billion. Gross capital expenditure was $864 million during the quarter

Q3 Outlook

All numbers in percentage are compared with the third-quarter 2019 figures. For the third quarter of 2022, the carrier expects capacity to decline in the 15-17% band. Non-fuel unit costs are expected to increase 22% from the third-quarter 2019 actuals. Total revenues are likely to increase in the 1-5% band (i.e., expected in the $12.6-$13.1 billion range).

Gross capital expenditures and adjusted net debt are likely to be $1.8 billion and $20 billion, respectively, in the September quarter. Management also expects fuel price per gallon in the $3.45-$3.60 range. Delta expects adjusted operating margin in the 11-13% range. Non-operating expense is expected in the $180-$200 million band. Tax rate is anticipated to be roughly 24%. Delta expects to generate a “meaningful full year profitability”.


How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Delta has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.


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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