Delta (DAL Stock Down Despite Q4 Earnings and Revenue Beat

Delta Air Lines’ DAL fourth-quarter 2022 earnings (excluding 19 cents from non-recurring items) of $1.48 per share beat the Zacks Consensus Estimate of $1.29 per share. DAL reported earnings in the fourth quarter of last year at 22 cents per sen, which was quite disappointing considering that air-travel demand was not as high then.

Delta reported revenues of $13,435million, which was also higher than the Zacks Consensus Estimate $13,030.3 Million. Due to the increased air-travel demand, total revenues grew by more than 41.87% year-over-year.

The fourth quarter 2022 saw passenger revenues account for 81% more than the level in the comparable quarter 2019. They increased 6% to $10.889 million. The domestic market accounted for 75% of total passenger revenues in the fourth quarter 2022. From fourth-quarter 2019, actuals, domestic and international passenger revenues increased by 7% & 5%, respectively.

Cargo revenues increased by 33% over the fourth quarter 2019 actuals. Other revenues increased to $2.298 million, up from $1.007 million three-years ago. Adjusted operating revenue (excluding third-party sales to refineries) was $12,292million, an increase of 8% over the fourth quarter 2019.

DAL shares declined in pre-market trades despite the revenue and earnings beat. The March quarter guidance was weaker than expected and led to the downturn.

DAL currently has a Zacks Rank 3 (Hold) and expects first quarter 2023 earnings per share between 15 and 40 cents. The Zacks Consensus Estimate currently stands at 45 cents per shared.  High costs are the main reason for the downbeat guidance.

The cost per available seat mile (adjusted), or non-fuel unit prices, are expected to be between 13.64 and 13.77 cents in the first quarter 2023. Per Dan Janki, Delta’s chief financial officer “For the March quarter, we expect non-fuel unit costs to increase 3 to 4 % year-over-year, including a full quarter impact from labor cost increases and finalizing the rebuild of our network for the peak summer period”.

Other aspects of Q4 Earnings Report

Adjusted operating margin was 11.6%. DAL achieved a double-digit operating percentage for the third consecutive quarter. DAL is on track to reach its goal of $7 adjusted earnings per share by 2024.

Below are all the figures (in percentage terms) for the fourth quarter 2019.

Revenue passenger miles, which is a measure for air traffic, dropped 10% to 50.476 billion. Capacity, measured in available seat miles, fell 9% to 59.506 million. The load factor, which measures the percentage of passengers using seats, fell to 85% from 86% during the same quarter in 2019.

Passenger revenue per mile of available seating increased by 17% to 18.30cs. The passenger mile yield rose to 21.57cs, from 18.29cs in the fourth quarter 2019. Adjusted basis, the total revenue per available seat kilometer increased 19% to $20.66 cents during the December quarter.

The total operating expenses, including special items climbed 19% to $11,965 millions. The reported quarter saw an increase of 42% in aircraft fuel expenses and related taxes to $2,849 millions.

Fuel gallons used fell 13% to $869 Million. The average fuel price per gallon (adjusted), jumped 61% to $3.20. Due to a 9.9% drop in capacity, the non-fuel unit cost (adjusted) rose 13% to 13.14cs in this quarter.

At the December quarter’s end, the airline had $9.4B in liquidity (including $2.9B under undrawn-revolving credit facilities). Delta had $22.3 billion in adjusted debt.

Janki says that “We made significant progress in restoring our financial base in 2022 with positive cash flow generation and three quarters with double-digit margins. This enabled us to pay down over $4.5 billion of gross debt during the year, strengthening our balance sheet”.

Outlook

The carrier expects to see a 1% decrease in capacity from the first-quarter of 2019, and that it will reach around 62 billion by the end of the first quarter. The adjusted total revenues will increase between 14 and 17% from the first quarter 2019 actuals.

Management expects that fuel price per gallon will be in the $3.05 to $3.25 range. The 4-6% operating margin is anticipated.

Full-year 2023: The carrier expects to see a 1% increase in capacity compared with 2019 actuals. It is expected that the total number of passengers will reach 278.5 billion. The 2023 non-fuel unit cost (adjusted), is expected to be in the 12.36-12.61cs range, which represents a decline of 2-4% over the previous year. On a year-over, total revenues are expected to rise in the 15-20% area.

Management expects that 2023 gasoline prices per gallon will be in the $3-$3.20 range. The operating margin for 2023 will be in the 10-12% range.

For full-year 2023, earnings per share are expected to range between $5 and $6. Zacks Consensus Estimate at $5.08 per shares is below the midpoint of the range ($5.50 per share). In 2023, there will be a free cash flow of over $2 billion.

The Key Selections

There are some stocks that rank higher in the Zacks Airline sector. American Airlines AAL Gol Linhas GOL and GOL both currently have a Zacks rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Airlines has its headquarters in Fort Worth (Texas). AAL is being helped by a steady increase in air-travel demand, especially for leisure travel. High fuel costs are negatively impacting the bottom line.

Over the past 60 days, the Zacks Consensus Estimate for AAL’s 2023 earnings has been revised 13.1% upward. AAL  has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark in the other one). The average beat is 8.62%.

Gol Linhas is very happy with the steady improvement in Brazilian air-travel demand.  Upbeat air-travel demand is boosting GOL’s traffic.

Over the past 60 days, the Zacks Consensus Estimate for GOL’s 2023 earnings has been revised 14.1% upward. GOL has outperformed the Zacks Consensus estimate for earnings in two of its last four quarters (missing it in the other two).

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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report

Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report

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