Delta Air Lines DAL is scheduled to report first-quarter 2025 results on April 9, before market open.

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In the March quarter, the heavyweight airline is expected to report a 2.2% year-over-year increase in earnings. DAL is expected to have reported a 0.4% year-over-year increase in revenues.  

The Zacks Consensus Estimate for first-quarter 2025 earnings, currently pegged at 46 cents per share, has been revised 55.3% downward in the past 60 days. The Zacks Consensus Estimate for first-quarter 2025 revenues is currently pegged at $13.8 billion.

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DAL has a mixed earnings surprise history, surpassing the Zacks Consensus Estimate in two of the preceding four quarters and missing twice, the average beat being 6.5%.

Given this backdrop, let us examine the factors that might have influenced Delta Air Lines’ performance in the to-be-reported quarter.

Citing economic uncertainties and the resultant reduction in consumer and corporate confidence, which is likely to have resulted in a slowdown in domestic air travel demand, DAL recently reduced its first-quarter 2025 projections for key metrics.  The airline now expects adjusted earnings per share guidance in the range of 30-50 cents from the previously guided range of 70 cents to $1 per share.  

The adjusted operating margin in the March quarter is now expected to be in the band of 4-5%, which is lower than the prior guided range of 6-8%. We expect adjusted operating margin of 4.7%.

Management has also reduced the first-quarter 2025 total revenues (adjusted) view and expects the same to increase in the 3-4% band from first-quarter 2024 actuals. The updated revenue outlook marks a downside from the previous expectation of 7-9% year-over-year growth. We expect domestic passenger revenues to register a mere 0.6% year-over-year growth compared with the 4.6% growth recorded in the fourth quarter of 2024. 

Labor costs are also likely to have been high, hurting bottom-line performance in the March quarter. We expect salaries and related costs to increase 8.6% in the to-be-reported quarter from the first quarter of 2024 actuals.

On a brighter note, low fuel costs due to the downtrend in the oil price are likely to have boosted the bottom-line performance. The southward movement of oil prices bodes well for the bottom-line growth of DAL. This is because fuel expenses are a significant input cost for the airline space.

Earnings Whispers for DAL

Our proven model does not predict an earnings beat for DAL this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat, which is not the case here.

The company's Earnings ESP is -14.05%. This is because the Most Accurate Estimate currently stands at 40 cents per share, 6 cents lower than the Zacks Consensus Estimate. DAL currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

DAL Price Performance & Stock Valuation

Due to the slowdown in domestic air travel demand, airline stocks have performed dismally in the January-March period. Delta and other key players in the Zacks Transportation - Airline industry, such as United Airlines UAL and American Airlines AAL, have declined in double digits in the three-month period. Shares of DAL, United Airlines and American Airlines have plunged 28%, 28.9% and 39.5%, respectively.

Q1 Price Comparison

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From a valuation perspective, Delta is trading cheaper than the industry. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.44X, lower than the industry average of 1.25X. The company has a Value Score of A. Fellow airline operators, United Airlines and American Airlines, are trading even cheaper. While United Airlines is trading at a forward sales multiple of 0.36X, American Airlines is doing so at 0.12X.

DAL’s P/S F12M Vs. Industry, UAL & AAL

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Investment Thesis of DAL

Even though air travel demand has improved from the pandemic low, the recent slowdown in the same, particularly on the domestic front, is a concern. The tariff-induced economic uncertainty is unlikely to fade away soon and is likely to weigh further on passenger revenues. 

High labor costs are a further concern and are likely to hurt the bottom line. However, DAL’s shareholder-friendly stance is a positive. Delta’s liquidity position is also encouraging. A good liquidity position gives operational flexibility.

Final Thoughts 

Despite low fuel costs, DAL is set for an unimpressive first-quarter performance due to low passenger revenues, mainly on the domestic front.

Given this backdrop, we can safely conclude that investors should refrain from rushing to buy DAL stock ahead of its earnings release on April 9. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains. DAL’s current Zacks Rank supports our thesis.

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This article originally published on Zacks Investment Research (zacks.com).

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