The Economic Warning from Delta Earnings $DAL

Delta earnings let's review what's going

on with Delta earnings and what kind of

potential leading indicator this could

have for the economy keep in mind myself

and many of us in the courses on

building your wealth we've been watching

inflation through earnings

in the last really year and one of the

things that we've noticed is this

massive inflection point it's more than

a year actually it's more like 18 months

we noticed in and I want you to pay

attention to this when it comes to

earnings so I'm saying it before we get

to Disney earnings on purpose or sorry

Delta earnings here on purpose

in q1

2022 January we noticed massive

inflation every single company was

bragging about having pricing power and

I'm like look if everybody's saying they

got a massive PP not everybody's got a

massive PV like Master PP comes from

massive brand value and the people's

willingness to buy a product in almost

any circumstances no matter how hard

that was the case in January 2022

everybody was buying everything still

and inflation was very very rampant over

the last six months we've seen that

almost evaporate breaking down Q4 q1

earnings for example given that Q2 were

just now starting breaking down Q4 and

q1 by going through the actual

fundamentals and looking at what

companies are doing with their cash with

their debt with their inventories with

their revenues with their net income and

what they're saying about inflation and

earnings calls is a really really good

in my opinion leading indicator of

what's happening with inflation and

everything that we've been reading over

the past six months has made it very

clear that the CPI numbers we got

yesterday are what we would expect

it's because earnings are really good at

forecasting this kind of stuff in my

opinion so anyway as a result we're

going to look at Delta I just want you

to be aware that the more we look at

these companies the the more insight uh

we broadly glean and it's not going to

be one company here there that generally

helps that's a broad that sort of

average that Collective movement of

everything so with that said let's take

a quick look here at Delta

so the first thing that I always like to

do when I do these earnings at least

what we do when we do these earnings

with course members is uh we go straight

to uh balance sheets cash flow

statements uh and uh and of course the

income statement before we get to any

kind of commentary uh so cash flows at

Delta have more than 2x over here you

can see we're at about 1.8 billion in uh

well net income rather uh cash flows

themselves are slightly up uh we can see

that here net cash provided by operating

activity so our net income rather let me

State this correctly is up about 2x in a

bit we've got a little bit of a decline

here in air traffic liability in my

opinion this is a sign of potentially uh

Delta becoming

a little bit more organized with with

their cash to where they're able to

catch up on some of their bills payable

air traffic liability is usually when

you go land at an airport you have to

pay Landing fees and support service

fees so those are not just the landing

fees but then of course you have

cleaning fees you have fuel dump fees uh

or sorry fuel fill fees uh toilet dump

fees rather uh and all the other Support

Services you get from an airport

oftentimes get thrown together under air

traffic liability you've got a change in

profit sharing a big massive increase

over here uh what else we have let's

look at net cash from investing we've

got plant property and Equipment sitting

somewhere around one four billion so

many more Investments coming in here

from the airline industry and this might

be one of the reasons we uh

actually have a bit of a leading

indicator of of

come not necessarily for inflation of of

of general aviation inflation but what

you generally find in my opinion is

when you have the airlines spending

massive amounts of money on more planes

you're in a really great situation

potentially for

aerospace companies those are going to

be your boeings your Airbus uh your

Embraer mostly because if there's one

place that still has inflation in my

opinion it's Aerospace that is a place

where you're still fraught with

shortages you're still waiting two years

for planes these Airlines keep buying

more and more planes the regional planes

are usually embroiders the longer

distance planes are usually Airbus and

Boeing and these companies or companies

that are still dealing with rapid

inflation and so I really like looking

at the airlines for that because I want

to see inflation at some point roll over

and the the air business like the

Aerospace business but boy we haven't

been anywhere close to seeing that

rollover yet uh payments on damp look at

this they're really paying down their

obligations here and I like seeing this

because the airlines have been so

indebted so not only are we paying down

our air traffic liabilities much more

than we were last year at this time in

fact last year at this time they were

growing although that could also have

been because there were fewer flights

compared to now then you've got payments

on debt finally twice as much pay down

now as you previously have that's

fantastic so this this already looks

much much stronger let's look at what

we've got over here in ticket Revenue so

we've got about an 18 increase in ticket

for for main cabin Revenue 25 increase

in premium products you are getting a

lot of premiumization of the airlines as

well I personally wonder how that'll

show up in inflation because CPI

generally compares the same pricing for

the same product or service every year

so they'll make adjustments for okay is

this a granny smith apple or is this a

Gala apple and their goal is to try to

minimize substitutions of course when

they need to they make substitutions

point of that is you're generally not

going to see the Bureau of Labor

Statistics take a uh main cabin seat and

replace it with like a first class seat

but you might compare first class to

first class on Delta and main cabin in

main cabin on Delta uh so but seeing

more of a revenue bump in premium

products is not a surprise for me at

Delta mostly because a lot of companies

are really trying to focus on

giving more of these or having more

first class availability in fact some of

the newer plans are being considered as

having substantially larger first-class

areas than main cabin areas because

people are just willing to pay more now

whether it's because the higher income

individuals or middle to Upper income

individuals just have more money or it's

because people are just wanting to pay

for more of an experience or it's

because people are tired of Airlines

getting so crammed and exhausting that

they'll pay they'll gladly pay for a

little bit of a better experience who

knows 21 increase 21 increase in loyalty

travelty Awards we've got uh their their

Refinery business so they actually also

have stakes in in oil and for finding

the Airlines use this as hedging I

always find that very interesting

although Refinery revenue is down 36

percent it's actually very good usually

when oil prices are down because

kerosene prices are down it's a huge

line item for these air Airlines so this

is more of a headline inflation figure

to see fuel costs come down

substantially so we like to see that

let's jump on over to the main page and

see what kind of items they're

specifically paying attention to so uh

they're saying Delta is delivering to

customers with strong operational

performance and Best in Class service

during the busy summer period with this

performance we generated record revenue

and profitability in June our people are

the best Professionals in the industry

proud to recognize their achievements

we've got 666 million in the first half

towards next year's profit sharing

consumer demand for travel remains

robust against this constructive

backdrop we are increasing our 2023

earnings guidance to six to seven

dollars per share reiterating our

recently updated Outlook

of three billion dollars of free cash

flow for the Year this is a this is

pretty strong it's a pretty strong

report the CEO was uh

has said in at some Point here either in

this document or I was reading about

this a little bit before it went live

that they are expecting to be in the

middle Innings of travel demand which is

quite interesting because some folks

were thinking that we might end up

getting a rollover on travel demand but

it just seems like it keeps going

Delta's got 12 aircraft scheduled for

delivery in 2027 and eight uh they're

looking for 12 more air buses actually

they're trying to pay down four billion

dollars in debt and they're really

accelerating their debt repayment this

is what they're announcing we saw that

on the cash flow statement as well

though you've got uh Delta passenger

Revenue at 13.2 Bill exceeding

expectations of 12.75 adjusted Revenue

coming in at 1261 exceeding the 14-4

you've got net at 1.72 Bill exceeding

the 1.5

expected and EPS of a midpoint sitting

at a 2.40 expected for Q3 adjusted the

market was only looking for

2.06 so these are really good numbers

here coming out versus expectations

let's look at some of the commentary on

demand and Outlook

and uh we'll get a lot more insight from

the earnings call as well but let's get

started here robust demand is continuing

in the September quarter where we expect

Revenue to be similar to the June

quarter up 11 and 14 compared to

September of quarter uh the September

quarter of 2022

unit Revenue strength continues so

really what's remarkable about this and

it's probably going to help contribute

to the market being at least somewhat

happy here is you've got more robust

spending from the consumer Which is less

recessionary this is a broad leading

indicator also of recession if we were

really heading into a recession we

shouldn't see a September quarter that

is as strong as the June quarter but in

addition to that we're seeing this

coupled with less inflation less

inflation I mean fuel costs down 34 uh

versus 2022 average fuel price of just

2.52 cents a gallon for kerosene jet

fuel that's amazing and listen to this

we expect in the September quarter

non-fuel costs to decline one to two one

to three percent so in other words no

recessionary indicate cater and even

more fuel

disinflation actually deflation quite

frankly remember disinflation is a lower

rate of growth deflation is is a decline

in inflation so more debt payoff less

recessionary indicator less inflationary

indicator couple this with what we've

gotten from CPI this is fantastic this

is a really good way to start off

earnings season I'm very excited about

this uh and even though I personally am

not a big fan of investing in the

airlines mostly because I'm I'm afraid

at how much debt these companies have uh

they they are turning this around looks

like we've got about I would say about

six billion dollars in cash and

short-term Investments looking at this

quickly I've only got about 30 seconds

left to talk about Delta here we've got

uh current debts sitting at oh boy

current debts backing off loyalty

programs and deferred revenues we've got

current dance sitting at about 25

billion dollars in current debts you've

got long-term debts here in excess of uh

at least 25 billion dollars again taking

out deferred revenues probably closer to

about 32 billion dollars massive amounts

of debt not extremely excited about this

but what I am excited about is you

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all right