Delta’s earnings miss estimates, hurting airline stocks

Key conclusions

  • Delta Air Lines shares fell 8% shortly after markets opened on Thursday after the airline’s second-quarter profit fell well short of estimates.
  • Delta forecasts lower-than-expected adjusted earnings of $1.70-$2.00 per share for the third quarter.
  • Shares of rival airlines United, American, Southwest and Alaska fell on Thursday.

Delta Air Lines (DAL) shares fell on Thursday after the carrier reported second-quarter profit that missed estimates despite record revenue during the period.

Total revenue rose 7% from the second quarter of last year to $16.7 billion, beating analysts’ forecasts of $16.2 billion, according to estimates compiled by Visible Alpha. But Delta’s earnings per share of $2.01 fell 29% year over year, falling well short of expectations of $2.39.

Record revenues and increased dividend did not compensate for low profits

Air travel demand has remained strong this year despite a larger decline in discretionary spending across the economy, with travel around the July 4 weekend breaking records.

Despite record second-quarter revenue and last month’s announcement that Delta would raise its dividend 50% to 15 cents a share, the stock was down 8% by 10 a.m. ET Thursday at $43.07 — its lowest level since March — on weak earnings. The company said fuel costs rose 12% year-on-year, while “ancillary and refinery” costs rose 25% and “landing fees and other rents” rose 24%.

The company said debt reduction remains Delta’s “top financial priority” in the second half of the year after spending $1.4 billion to pay down debt in the second quarter. Delta reaffirmed its full-year adjusted earnings per share (EPS) guidance of $6 to $7, but forecast lower-than-expected adjusted earnings of $1.70 to $2.00 in the third quarter.

Delta’s Results Drag Other Airline Shares

Delta’s report is affecting how markets think about upcoming earnings for other major airlines, and several other stocks were hit Thursday. United Airlines (UAL) and American Airlines (AAL) fell 6%, while Southwest Airlines (LUV) and Alaska Air (ALK) fell about 3% and 2%, respectively.