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Delta (DAL) Down 3.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Delta Air Lines (DAL). Shares have lost about 3.5% 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.

Earnings Beat at Delta in Q4

Delta's earnings per share (excluding 1 cent from non-recurring items) of $1.70 per share surpassed the Zacks Consensus Estimate by 30 cents. The bottom line also improved 30.8% on a year-over- year basis, mainly owing to low fuel costs. Delta’s results were also aided by the sale of its stake in GOL Linhas.

Operating revenues in the quarter came in at $11,439 million, edging past the Zacks Consensus Estimate. However, the top line increased 6.5% on a year-over-year basis, backed by upbeat air-travel demand from holiday travelers.

Other Details

During the reported quarter, passenger revenues, which accounted for 89.6% of the top line, improved 6% mainly owing to strong demand for air travel. Meanwhile, cargo revenues declined 13%. Other revenues increased 14%. The average fuel price (adjusted) in the fourth quarter was $1.99 per gallon, down 17.7% on a year-over-year basis.

Revenue passenger miles (a measure of air traffic) increased 5.2% to 56 billion. Capacity (measured in available seat miles) expanded 4.7% to 65.46 billion. Load factor (percentage of seats filled by passengers) improved 40 basis points to 85.6%, as traffic growth outpaced capacity expansion. Passenger revenue per available seat mile (PRASM) increased 1.4% year over year to 15.65 cents. Passenger mile yield improved 0.9% to 18.29 cents. On an adjusted basis, total revenue per available seat mile (TRASM) in the fourth quarter increased 2.4% year over year to 17.47 cents.

Total operating expenses, including special items, climbed 4% year over year to $10,040 million. Operating cost per available seat mile (non-fuel or CASM- Ex) increased 4.4% to 11.21 cents, driven by increased investments and a mark-up of benefit-related balance-sheet obligations.


Liquidity, Dividend and Share Repurchase

Delta generated free cash flow of $141 million and operating cash flow of $969 million in the fourth quarter. For full-year 2019, the carrier generated $8.4 billion of operating cash flow and $4.2 billion of free cash flow. Delta exited the quarter with $2, 882 million in cash and cash equivalents compared with the $1, 565 million recorded at the end of 2018.

Delta returned $484 million to its shareholders through dividends ($259 million) and share buybacks ($225 million) in the quarter under review. For the full year, Delta returned $3 billion to shareholders through dividends ($980 million) and share buybacks ($2 billion).

Annual Results

For full-year 2019, the carrier’s earnings (on an adjusted basis) climbed 30% to $7.31 per share. Revenues increased 7.5% to $47 billion. The Zacks Consensus Estimate was of earnings of $7.03 per share on revenues of $46.9 billion.

Guidance

For the first quarter of 2020, the carrier expects revenues to grow in the range of 5% to 7%. The estimated fuel price, including taxes and refinery impact, is expected in the range of $2-$2.20 per gallon for the ongoing quarter. Pre-tax margin is expected to be flat on a year-over-year basis. The company expects total revenues per available seat miles (TRASM: adjusted) to be either flat or increase up to 2% in the quarter. Non fuel unit cost (CASM -Ex) is estimated to increase in the 2-3% range during this period.

The carrier anticipates to generate free cash flow of $4 billion in 2020. The carrier aims to deliver a three-year cumulative free cash flow in excess of $10 billion by Dec 31, 2020. Delta expects 2020 earnings per share between $6.75 and $7.75.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.67% due to these changes.

VGM Scores

Currently, Delta has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Delta has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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