Story Stocks®
Updated: 22-Apr-20 10:46 ET
Delta Airlines cost-cutting measures and strong liquidity position offering some hope (DAL)
- Delta Airlines (DAL) is the first major airliner to report Q1 earnings. Predictably, the results weren't pretty, as revenue fell by 18% to $8.59 bln vs. the $9.33 bln consensus estimate. Total unit revenue (TRASM) sank by 12% on an adjusted basis to $14.59.
- As the industry has been decimated by travel restrictions and stay-at-home directives, a dismal performance and outlook was already baked into the stock.
- Although shares have pulled back, the stock initially reacted favorably to the report, up ~3% in early morning action. We believe this was due to a few factors:
- DAL's Q1 loss of ($0.51) was much better than feared.
- The company believes it can reduce Q2 total expenses by 50% due to reduced capacity, lower fuel costs, and cost saving initiatives.
- DAL expects that cash burn will moderate to $50 mln per day compared to the $100 mln at the end of March.
- DAL's liquidity position looks relatively solid considering the circumstances.
- Since early March, the company raised $5.4 bln in capital, drew down $3 bln under its revolving credit facility, and secured $5.4 bln in aid from the CARES Act.
- Overall, the company expects to end the June quarter with ~$10 bln in liquidity.
- With the stock down ~60% since late February, investors are looking to capitalize on the collapse now that the Q1 report is in the rearview mirror.
- From a demand perspective, the outlook remains very bleak. DAL plans on cutting capacity by 85% in Q2. Although financial guidance wasn't provided today, CEO Ed Bastian stated on April 6 that he expects Q2 revenue to decline by a staggering 90% in Q2.
- It's clear that the next two quarters, at a minimum, will be disastrous for DAL and the airline industry. What's more uncertain is what the demand picture will look like in late 2020 and early 2021. DAL's executives may not have clear-cut answers on that topic, although investors will be in search of any longer-term perspectives during the earnings conference call at 10:00 am ET.
