Delta Stock Dips on Q2 Miss, Q3 Revenue Outlook Soft

Delta's Q2 net income drops 28%, revenue outlook disappoints, stock nears four-month low.

By Barry Stearns

7/11, 08:17 EDT
American Airlines Group, Inc.
Alaska Air Group, Inc.
Delta Air Lines, Inc.
Southwest Airlines Company
United Airlines Holdings, Inc.

Key Takeaway

  • Delta Air Lines (DAL) missed Q2 earnings expectations with net income of $1.31 billion and adjusted EPS of $2.36, slightly below consensus.
  • The airline's downbeat Q3 revenue outlook of 2%-4% growth led to a premarket stock decline, impacting other major airlines.
  • Despite challenges, Delta reiterated its full-year EPS guidance of $6-$7 and free cash flow forecast of $3-$4 billion.

Earnings Miss

Shares of Delta Air Lines Inc. (DAL) were approaching a four-month low in premarket trading Thursday, following the release of second-quarter results that fell short of market expectations. The airline reported a net income of $1.31 billion, or $2.01 per share, down from $1.83 billion, or $2.84 per share, in the same period last year. Adjusted earnings per share (EPS) came in at $2.36, slightly below the FactSet consensus of $2.37. Total operating revenue grew by 6.9% to $16.66 billion, while adjusted operating revenue rose 5.4% to $15.41 billion, just missing the analyst consensus of $15.45 billion.

Passenger revenue increased by 4.8% to $13.84 billion, falling short of the expected $13.94 billion. Cargo revenue, however, jumped 15.7% to $199 million, surpassing expectations of $166.7 million. Other revenue rose 18.9% to $2.62 billion, beating the FactSet consensus of $1.69 billion. The load factor, a measure of how full the planes are, slipped by one percentage point to 87%, below the anticipated 87.9%, as traffic increased by 7% and capacity was up by 8%.

Downbeat Revenue Outlook

Delta's outlook for the third quarter also disappointed investors. The company expects revenue growth of 2% to 4%, while the current FactSet revenue consensus of $15.36 billion implies a growth of 5.6%. This cautious forecast has contributed to the stock's premarket decline. Delta's Chief Executive Officer Ed Bastian commented on the situation, stating, "Excess supply has led to heavy discounting. Like everyone, you get impacted."

The airline reiterated its full-year guidance for EPS of $6 to $7 and for free cash flow of $3 billion to $4 billion. Despite the recent challenges, the stock has climbed 16.5% year to date through Wednesday, outperforming the U.S. Global Jets ETF, which has edged up 1.5%, but lagging behind the S&P 500's 18.1% rally.

Broader Market Impact

The disappointing results and outlook from Delta have had a ripple effect across the airline industry. United Airlines, American Airlines, Alaska Air, and Southwest Airlines all saw declines in premarket trading, with drops of 3.5%, 3.8%, 2.3%, and 3.0%, respectively. The impact was not limited to U.S. carriers; European long-haul carriers such as IAG and Lufthansa also experienced declines, with both stocks falling as much as 3.5%. Air France-KLM saw a drop of up to 2.1% before paring losses.

Bernstein analyst Alex Irving noted that data from the broker's July tracker points to softer fare developments into summer among European airlines, as well as tough comparables and a deteriorating environment for fuel prices. Low-cost carriers like Wizz Air, Ryanair, and easyJet were little changed, with Ryanair and easyJet even showing slight gains of 0.3% and 0.5%, respectively.