Key points to remember
- Adjusted EPS was -$2.53 versus analysts’ expectation of -$2.29.
- Revenue exceeded analysts’ expectations.
- The load factor was below consensus estimates.
What happened
Delta reported mixed results for the fourth quarter of 2020, with a quarterly load factor that fell short of analysts’ forecasts by a considerable margin. On an adjusted basis, EPS was also lower than expected. Load factor and EPS were down significantly from Q4 2019, but up slightly from Q3 2020. Revenue was the only bright spot in an otherwise difficult quarter; Delta beat analysts’ expectations in this area, although fourth-quarter 2020 revenue was still down year-over-year by a wide margin. Delta Chairman Glen Hauenstein said the company expects the first part of 2021 to be characterized by “a choppy recovery in demand and a booking curve that remains compressed” before an inflection point and a sustained recovery in demand later in the year.
(Below is the original Earnings Snapshot from Investopedia, published January 13, 2021.)
What to look for
Delta Air Lines Inc. (DAL) has experienced a drastic decline in business due to the COVID-19 pandemic. As the virus spread globally, travel restrictions and quarantines decimated the entire airline industry, forcing Delta to park or retire approximately 40% of its aircraft fleet by September 2020. The company said in October that it could be another two years before revenue returns. at normal levels.
Now, investors will be watching closely if Delta shows any signs of progress when it reports results ahead of market open Jan. 14, 2021 for the fourth quarter of fiscal 2020.The news will not be good, at least in the short term. Analysts expect Delta to report its fourth straight quarter of losses on an adjusted basis. The company is also expected to report its fourth straight quarter of year-over-year (YOY) revenue decline.
A key metric investors are likely to focus on in the earnings report is Delta’s load factor, an efficiency gauge that measures the percentage of Delta’s seat capacity that is utilized. Similar to revenue and EPS estimates, analysts expect Delta’s load factor to fall in the fourth quarter of fiscal 2020 from a year ago, although it will improve from the third quarter. of fiscal year 2020. Given the unusual circumstances in the airline industry during the pandemic, there is potential for a significant deviation from analysts’ expectations in this area.
Delta’s share price plunged in early 2020 as the pandemic took hold in the United States and has failed to stage a meaningful recovery since then. The stock has significantly underperformed the broader market, posting a total return of -31.8% over the past 12 months compared to the S&P 500’s total return of 15.6%.
Source: Trading View.
Prior to the start of 2020, Delta’s quarterly revenue had seen steady year-over-year increases in the range of 3.3% to 9.6% for 11 consecutive quarters. However, the company’s revenue fell year-over-year in each of the first three quarters of 2020, with the second quarter of fiscal 2020 being the worst, as revenue fell 88.3% in 2020. year-on-year. Analysts predict that the fourth quarter of fiscal 2020 will see revenue fall 67.1% year-on-year.
Delta’s adjusted earnings per share have been similarly dismal in each of the past three quarters. The first quarter of fiscal 2020 marked the first quarterly loss in nearly three years, reversing a string of significant quarterly year-over-year EPS gains. Losses were larger in Q2 and Q3 of fiscal 2020. For Q4, analysts expect another large loss, amounting to $2.29 per share on an adjusted basis.
| Key delta indicators | |||
|---|---|---|---|
| Estimate for the fourth quarter of 2020 (fiscal year) | Q4 2019 (fiscal year) | Q4 2018 (fiscal year) | |
| Adjusted earnings per share | -$2.29 | $1.70 | $1.30 |
| Turnover (in billions) | $3.8 | $11.4 | $10.7 |
| Load factor | 49.3% | 85.6% | 85.2% |
Source: Visible alpha
The drop in air travel means Delta’s passenger fill factor will be an especially crucial metric for investors. The load factor is likely to be negatively affected by government restrictions on travel as well as reduced business travel and voluntary travel by individuals. Load factor measures the percentage of available seat capacity that is filled with passengers. A high load factor corresponds to a high percentage of seats occupied by passengers and is considered favorable. Since the costs of sending a plane flying are about the same whether the jet is 50% full or 100% full, airlines have a strong incentive to sell more tickets in order to fill seats. . Higher load factors mean that an airline’s fixed costs are spread over a larger number of passengers, making the airline more profitable.
Delta’s load factor metric fully reflects the crisis the company is facing. Analysts predict Delta will report its load factor for the fourth quarter of fiscal 2020 was 49.3%, significantly lower than 85.6% in the first quarter of fiscal 2019. That’s also significantly lower than load factors of each quarter of 2017, 2018 and 2019. It peaked at 88.3% in Q3 of fiscal 2019.
There are positive signs. Estimated load factor of 49.3% for the fourth quarter of fiscal 2020 reflects a significant improvement from 34.2% in the second quarter of fiscal 2020 to 40.8% in the third quarter of fiscal 2020.The load factor will still have to rebound before Delta fully recovers.