Quarterly revenues for Delta Air Lines do not inspire confidence

<p>The airline group has been a disaster so far this year, which should come as a little surprise to investors at this time. Delta Air Lines (NYSE: DAL), which reported quarterly results today, has not been immune to the decline. Let’s put it this way: DAL share is still more than 60% off its 2020 level and it’s better than most of its peers.

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I think it gives a pretty good picture of how this year has treated the industry. It does not help when there is uncertainty about state aid and general frustration over the group’s decision to spend billions of dollars on repurchases over the years.

Nor does it help that reports have surfaced of Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) reducing exposure for DAL shares and Southwest Airlines (NYSE: LUV).

It is the opposite of what investors assumed, with many believing that Oracle would add more to this battered group and potentially look at Boeing (NYSE: BA) as a candidate as well.

Participate results

When airlines’ stocks are down, investors are still trying to find their stocks. They mainly discuss only one question: should they avoid them like the plague or dive in? When we get more information, we get more clarity. Thankfully, the quarterly results shed plenty of the former.

Delta Air Lines reported a non-GAAP loss of 51 cents per share, which was 31 cents better than expected. However, a GAAP loss of 84 cents per share missed estimates by 16 cents. Revenue of $ 8.59 billion decreased by 18% compared to the previous year and missed analysts’ expectations by almost $ 750 million.

These figures concern me for one simple reason: the ongoing pandemic did not affect the entire quarter. On March 1, the United States had less than 100 cases of new coronavirus. January was as usual and February should not have been too disturbing, although the American public then noted and some international flights came offline.

Delta still realized a loss before tax of more than $ 420 million on what was less than a quarter of the carnage. I’m also worried about burning cash. This part of the company’s press release helps to put cash burning in perspective (emphasis mine):

“With COVID-19‘s significant impact on Delta’s revenue, we burned $ 100 million a day at the end of March. Through our decisive action, we expect cash to burn to a moderate $ 50 million per day by the end of June. ”

Burning $ 50 million a day is worrying – and that’s the management’s goal of burning cash! While the company ended the quarter with $ 6 billion in liquidity, it will only last that long with this type of burn. That said, DAL has received $ 2.7 billion out of an expected $ 5.4 billion in federal aid, which would help things.

Trading in DAL shares

The company also said it could apply for $ 4.6 billion in secured loans, if needed. It provides additional security and peace of mind regarding the airline’s liquidity situation. But when it comes to liquidity, it raises some concerns.

So far, the market is unsure of how to feel about the quarter. There are some cautious nods, but with so many unknowns related to the coronavirus, it is difficult to know when life will return to normal and when it will, what it will look like for the airlines.

The DAL share appeared in trading before the market and so far it is down slightly on Wednesday, by 1.4%. Will Delta test the bottom? To be honest, the charts do not look so inspiring. The share’s inability to collect results creates a concern that the previous trends will remain intact. This is a problem for the bulls because the previous trend was bearish.

The DAL share remains below the 20-day moving average, as is the resistance in the downward trend (blue line). An end to these brands (currently close to $ 25) would negate them and put $ 30 into play. But as long as Delta is below these marks, it puts more disadvantage on the table.

However, a closing below the $ 21 to $ 22 range is an important warning sign for investors. That puts $ 19.10 low in March, with an even deeper decline in the cards if DAL closes below that mark. Here’s the point: keep an eye out for $ 21 to $ 22.

Bret Kenwell is the director and author of Future Blue Chips and can be found on Twitter @BretKenwell. At the time of writing, Bret Kenwell held no position in any of the above securities.