Delta ($DAL) – Earnings Summary – July 13, 2024
Results
- Missed revenue estimates by 0.4% and missed its revenue guide by 0.5%.
- Met $2.27B non-GAAP EBIT estimate & slightly beat its EBIT guide.
- Met $2.36 EPS estimate & met its identical EPS guide.
Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases
Guidance & Valuation:
- Next quarter revenue guidance was a bit light vs. expectations.
- Next quarter EBIT guidance missed estimates by 9%.
- Next quarter EPS guidance of $1.85 missed $2.09 estimates by $0.24.
- Leadership pointed out that EPS was in line with record 2019 levels despite fuel costs being 25% higher this quarter vs. that period. It has realized significant operational efficiencies over the years.
Annual guidance of $3.5B in FCF and $6.50 in EPS was reiterated. This slightly missed expectations looking for a small raise to both metrics.
“Travel remains a top purchase priority and Delta’s core customers are in a healthy position. The secular shift in consumer spend to prioritize experiences align perfectly with Delta’s strategy and premium focus across our global network. Air travel demand is at record levels, with this past Sunday marking Delta’s highest ever summer revenue day. For the September quarter, we expect continued demand strength… we remain confident in our full-year guidance.” – CEO Ed Bastian
Delta trades for 7x 2024 EPS. EPS is expected to grow by 5% Y/Y this year and 15% Y/Y next year. Here’s how that current multiple compares to its historical norms:
Balance Sheet:
- 2.8x debt to EBITDAR ratio vs. 2.9x Q/Q & 3.0x Y/Y.
- $4.2B in cash & equivalents; $3B in equity investments;
- $18B in debt ($2.95B is current). Paid down $2.1 billion in debt year to date (YTD) using its $2.7 billion in YTD FCF. $900 million out of the $2.1 billion was repaid early.
- Diluted share count rose by 0.9% Y/Y.
- Reinstated a small quarterly dividend during the quarter. It paid out $64 million in dividends or about $0.10 per share. This will rise by 50% next quarter.
“Debt reduction remains our top financial priority.” – Presser
Presser & Call Highlights:
Industry Supply Glut:
Delta leadership cited an acceleration in sector-wide capacity growth. This is impacting pricing power in the main cabin, and is why the company missed revenue per unit guidance and overall revenue guidance. Delta calls itself the most insulated airline from this dynamic as the “carrier of choice with a diversified revenue base.” Non-core passenger revenue is 56% of its total business at this point, lending credence to that idea. It thinks competitors are now effectively capping capacity growth, which should result in “a more constructive backdrop through the back half of the year and into 2025. That’s reflected in the sharp Y/Y profit growth acceleration expected in 2025 (see the guidance & valuation section above).
Revenue by Segment & Overall Demand Trends:
- Premium revenue rose 10% Y/Y compared to 10% Y/Y last quarter.
- Loyalty revenue rose 8% Y/Y compared to 12% Y/Y last quarter.
- It collected $1.9 billion (+9% Y/Y) in remuneration (payments) from AmEx as part of its card program this quarter.
- Cargo revenue rose 16% Y/Y compared to -15% Y/Y last quarter.
- Delta is “encouraged by trends” here. Sounds encouraging for the overall economy.
- Domestic passenger revenue rose 5% Y/Y and international passenger revenue rose 4% Y/Y.
- Corporate travel has grown at a double digit clip for the last 6 months. Its corporate survey shows that 90% of its clients plan to raise or maintain their travel volume next quarter.
The Olympics:
Delta called out a $100 million revenue decline from the Paris Olympics. The rest of travel demand in Europe remains healthy. Apparently, non-Olympics travel to Paris is a larger headwind than actual Olympic travel is a tailwind. This also contributed to the revenue per unit miss.
Product & Presser Notes:
- Debuted its new Delta One gigantic luxury lounge in JFK.
- Ranked #1 by J.D. Power for First and Premium Economy passenger satisfaction.
- Its new app is leading to a 5 point boost to self-service usage (no employee needed)/
Take:
This quarter was fine. Annual targets are intact, and industry dynamics should power a profit growth acceleration next year. This is not a long term investment. It sells a commoditized service in a cyclical sector. Still, it is the best run company in its sector and there have certainly been periods for traders to reap strong profits from this name in the past. That will probably be true in the future too. At 7x earnings and the expected 2-year 10% EPS CAGR, a 0.7x PEG is cheap (like Delta usually is).
Broadly speaking, it’s nice to see Delta calling out continued demand strength on both the consumer and cargo side of things. That bodes well for continued economic resilience and demand for the products and services that public companies sell. It’s not a massive piece of good news, but certainly positive.
