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Will Passenger Revenues Boost Delta's (DAL) Q4 Earnings?

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Delta Air Lines, Inc. (DAL - Free Report) is scheduled to report fourth-quarter 2019 results on Jan 14, before the market opens.

The Zacks Consensus Estimate for fourth-quarter earnings has been revised upward by a penny in the past 60 days. Moreover, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 3.5%.

Let’s see whether the company is able to repeat its success story in the fourth quarter as well. Before that, let’s take a look at the factors that might have influenced its quarterly performance.

Strong air travel demand (approximately 3.5 million passengers flew on Delta during Thanksgiving period from Nov 25 to Dec 1, 2019) is expected to have driven passenger revenues (accounting for more than 90% of the top line) in the soon-to-be-reported quarter. Notably, the Zacks Consensus Estimate for passenger revenues indicates a 5.2% rise from the year-ago reported figure. The consensus mark for passenger revenue per available seat mile (PRASM or passenger unit revenues) is pegged approximately 1% higher from the year-earlier reported number.

Supporting the impressive passenger revenue growth is passenger traffic, measured in revenue passenger miles. The consensus mark for consolidated revenue passenger miles or traffic suggests a 5.2% increase from the reported figure in the fourth quarter of 2018.

Additionally, modest fuel prices are anticipated to get reflected in the carrier’s bottom-line performance as fuel expenses comprise a major chunk of airline expenditure. The company expects fuel price including taxes, settled hedges and refinery impact, to have been in the band of $2-$2.20 per gallon during the fourth quarter, implying a decline from $2.42 reported in the prior-year period. The Zacks Consensus Estimate for the same stands at $2.13.

However, higher non-fuel unit costs (due to high employee costs and increase in passenger volumes among other factors) are likely to have partly offset bottom-line growth. Notably, the Zacks Consensus Estimate for cost per available seat mile excluding fuel (CASM-ex or non-fuel unit costs) indicates a 4.4% rise from the year-ago reported number. The company estimates CASM excluding fuel and profit sharing to have climbed 4-5% in the fourth quarter.

Also, cargo revenues are likely to have declined in the fourth quarter due to lower volumes and yield, as has been the case in the last few quarters. The consensus mark for cargo revenues implies an approximate 8% decrease from that reported in the fourth quarter of 2018.

Delta Air Lines, Inc. Price and EPS Surprise


Delta Air Lines, Inc. Price and EPS Surprise

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

Earnings Whispers

The proven Zacks model predicts an earnings beat for Delta in the fourth quarter of 2019 on the back of a perfect combination of the following two key ingredients: a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Delta has an Earnings ESP of +2.22% as the Most Accurate Estimate is pegged at $1.43, higher than the Zacks Consensus Estimate of $1.39. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Delta carries a Zacks Rank #2.

Highlights of Q3 Earnings

In the last reported quarter, Delta delivered a positive earnings surprise of 2.2%. The bottom line also improved 28.9% on a year-over-year basis, primarily on account of low fuel costs. Although the top line increased on a year-over-year basis, it missed the Zacks Consensus Estimate.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider Azul S.A. AZUL, Copa Holdings, S.A. CPA and Golar LNG Limited GLNG as these stocks too possess the right combination of elements to come up with an earnings beat in their next releases.

Azul has an Earnings ESP of +13.33% and a Zacks Rank #3.

Copa Holdings is a #3 Ranked stock and has an Earnings ESP of +3.33%.

Golar LNG has an earnings ESP of +68.35% and a Zacks Rank of 3.

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