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Why is Delta (DAL) up 10.8% since its last earnings report?

A month has passed since Delta Air Lines (DAL) last reported earnings. Shares have risen about 10.8% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Delta in line for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Earnings better than Delta in the first quarter

Delta reported first-quarter 2024 earnings (excluding 39 cents from non-recurring items) of 45 cents per share, well ahead of the Zacks Consensus Estimate of 36 cents. Profits increased by 80% year-on-year. Revenues of $13.75 billion surpassed the Zacks Consensus Estimate of $12.84 billion and increased 7.75% year-over-year, driven by strong demand for air travel. Adjusted operating revenues (excluding third-party refinery sales) were $12.56 billion, up 6% year-over-year.

Passenger revenue, which represented 81% of total revenue, increased 7% year over year to $11.13 billion, just below our estimate of $11.17 billion. Domestic passenger revenues increased by 5% year-on-year.

Passenger earnings have improved on the international front. In fact, international passenger revenues increased by 12% year-on-year, and transatlantic passenger vessel (PRASM) revenues increased by 2%. Growth in travel spending by technology and financial services companies also contributed to the results

Freight revenue fell 15% year-over-year to $178 million. This amount was higher than our estimate of $144 million. Other revenues increased 14% to $2.43 billion. This amount was well above our estimate of $1.68 billion.

Adjusted operating margin was 5.1% compared to 4.6% a year ago.

Below we present all the data (in percentage terms) compared to the results for the first quarter of 2023.

Passenger mile revenue (a measure of air traffic) increased 9% to 54.21 billion. Capacity (measured in available passenger miles) increased 7% to 65.54 billion. Load factor (percentage of seats occupied) increased to 83% from 81%. This percentage was also higher than our estimate of 82%.

Passenger revenue per passenger mile remained flat at 17.98 cents. The yield per passenger mile fell to 20.53 cents from 20.95 cents. On an adjusted basis, total revenue per passenger mile decreased 0.7% to 19.17 cents. This result was slightly higher than our estimate of 19.13 cents.

Total operating expenses, including special items, increased 1% to $13.13 billion. Salaries and related costs increased 12% to $3.79 billion. The increase resulted from higher salaries resulting from the contract with pilots ratified in March 2023.

Gallons of fuel used increased 5% to $931 million. The average fuel price per gallon (adjusted) dropped 10% to $2.76. Non-fuel unit cost (adjusted or CASM-Ex) increased 1.5% to 14.08 cents.

DAL ended the first quarter of 2024 with cash and cash equivalents of $3.87 billion, compared to $3.21 billion at the end of the first quarter of 2023. The company’s adjusted net debt was $20.22 billion. March adjusted operating cash flow was $2.5 billion, with gross capital expenditures and free cash flow of $1.1 billion and $1.4 billion, respectively.

Perspectives

Delta expects second-quarter 2024 adjusted earnings in the range of $2.20 to $2.50 per share. Adjusted operating margin for the June quarter is expected in the range of 14-15%. Management anticipates second quarter 2024 total revenues (adjusted) to be between $15.3 billion and $15.6 billion, reflecting growth of 5% to 7% compared to second quarter 2023 actuals. the number of available passenger miles in the June quarter will increase by 6-7% compared to last year. Non-fuel unit costs are likely to increase by 2% in the second quarter of 2024. The suggested fuel price per gallon for the second quarter of 2024 is in the range of $2.7-$2.9.

DALstill expects 2024 adjusted earnings in the range of $6-7 per share. In 2024, adjusted free cash flow is still expected to be in the $3 billion to $4 billion range.

How have estimates changed since then?

It turns out that the review estimates have been trending upwards over the past month.

VGM results

At this point, Delta’s average growth score is C, but its momentum score is slightly better at B. Plotting a somewhat similar path, the stock was given an A grade on the value side, putting it in the top 20% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Delta carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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