It has been about a month since the last earnings report for Delta Air Lines (DAL - Free Report) . Shares have added about 3% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Narrower Than Expected Loss in Q1
The company reported a loss (excluding 33 cents from non-recurring items) of 51 cents in the March-end quarter compared with the Zacks Consensus Estimate of a loss of 72 cents. Delta had reported earnings of 96 cents per share (on an adjusted basis) in the year-ago quarter driven by high passenger revenues as air-travel demand was buoyant at that time.
However, with the advent of coronavirus things have changed drastically. Due to the spread of the coronavirus by geometric progression, blanket travel bans are imposed by governments across the globe. With several countries placed under lockdown, most people are debarred from taking trips in a bid to stay safe and avoid contracting the highly contagious disease from a fellow passenger.
As a result of the restrictions, passenger revenues, which account for bulk of Delta’s top line (89.1% in the first quarter), have been crippled thereby hurting its top line. Due to the passenger revenue weakness (down 18.2%), Delta’s total top line shrunk 18% year over year to $8,592 million. Additionally, total revenues fell short of the Zacks Consensus Estimate of $9,637.5 million.
Other Financial Details
Cargo revenues declined 20.8%. Other revenues decreased 15.1%. The average fuel price (adjusted) in the first quarter was $1.82 per gallon, down 11% on a year-over-year basis.
Revenue passenger miles (a measure of air traffic) decreased 16.6% to 43.1 billion. With Delta making significant capacity-cuts to match the coronavirus-induced sharp decrease in traffic, capacity (measured in available seat miles) contracted 5.7% to 58.88 billion. With the decline in traffic outpacing the fall in capacity, load factor (percentage of seats filled by passengers) declined 960 basis points to 73.1%. Passenger revenue per available seat mile (PRASM) declined 13.3% year over year to 12.85 cents. Passenger mile yield fell 2% to 17.58 cents. On an adjusted basis, total revenue per available seat mile (TRASM) in the first quarter decreased 12.3% year over year to 14.59 cents.
Total operating expenses, including special items, declined 5% year over year to $9,002 million on the back of low fuel costs. Notably, expenses on aircraft fuel and related taxes declined 19% in the reported quarter. Operating cost per available seat mile (non-fuel or CASM- Ex: on an adjusted basis) increased 9% to 12.58 cents. Delta, which has suspended dividend payouts and share buybacks due to the current crisis, exited the quarter with unrestricted liquidity of $6 billion.
Cash Burn Rate for Q2
Delta which burned $100 million in cash per day through March-end due to the coronavirus-led crisis, expects to bring down the rate to $50 million per day by the end of the second quarter. Delta expects to cut total system capacity by 85 % in the June-end quarter. While international capacity is likely to be trimmed by 90%, the measure is anticipated to be cut by 80% on the domestic front.
Due to the capacity cuts, low fuel costs and cost management initiatives like parking more than 650 planes, pay cuts and putting a freeze on hiring, Delta expects a 50% ($5 billion) reduction in second-quarter expenses. Delta expects to end the second quarter of 2020 with roughly $10 billion in liquidity.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -29.78% due to these changes.
Currently, Delta has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Delta has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.