Delta Air Lines
is having a hot summer in the air and in the stock market. The airline’s bumper second-quarter earnings and guidance hike suggest the good times are set to last.
The carrier reported record revenue and profitability in the second quarter, and it raised its full-year earnings guidance amid strong demand and lower fuel costs.
The stock initially surged around 4% ahead of the open, before falling to trade around 0.5% lower in early trading.
Travel demand in the summer season has proved strong so far, and Delta said that was continuing into the third quarter. The July Fourth holiday weekend broke records at airports across the U.S., the Transportation Security Administration said, while Friday, June 30 was its busiest ever air travel day.
The strong start to the third quarter led Delta to project earning per share of $2.20 to $2.50 in the September quarter, ahead of the analyst consensus of $2.07, according to FactSet. The airline also increased its full-year EPS guidance to between $6 and $7, from a previous range of $5 to $6.
Memorial Day weekend was also strong, and robust demand between the two holidays ensured Delta reported bumper earnings in the second quarter.
For the second quarter,
Delta
(ticker: DAL) reported adjusted earnings per share (EPS) of $2.68 on revenue of $14.6 billion. Analysts were expecting profit of $2.40 a share on revenue of $14.4 billion. Earnings also beat Delta’s own guidance of between $2.25 and $2.50 a share.
Operating income of $2.5 billion was also a record, the carrier said.
“With this performance, we generated record revenue and profitability in the June quarter,” CEO Ed Bastian said in a statement. “Consumer demand for air travel remains robust,” he added.
Fuel costs were another key reason for Delta’s strong earnings. The company’s adjusted fuel expense fell 24% from the same period last year, to $2.5 billion in the second quarter. Adjusted fuel prices fell 34% to $2.52 per gallon, it added.
As Delta is the first airline to report this earnings season, its strong results bode well for the rest of the sector. But Delta’s peers also erased earlier gains Thursday.
American Airlines
(AAL) stock fell 0.3%,
United Airlines
rose 0.7% but was off earlier daily highs,
Southwest Airlines
was 1.1% down, and
JetBlue Airways
fell 0.6%.
“Overall, the carrier’s results and guide look very encouraging,”
Citi
analysts led by Stephen Trent said.
“Citi continues to identify Buy-rated Delta as its favorite U.S. carrier,” they added, noting that the company’s valuation hasn’t yet recovered to prepandemic levels. They have a price target of $65 on the stock, implying a 35% upside from Wednesday’s closing price.
Delta stock enjoyed a record 15-day winning streak between the Thursday before Memorial Day weekend and June 15, rising 23% over the period. In mid-June, Delta also reinstated its dividend for the first time since it suspended payouts in March 2020, adding to the stock’s appeal.
The shares have still continued higher since the streak snapped, and are up 48% so far in 2023, as of Wednesday’s close.
Strong travel demand, particularly among Americans looking to fly overseas, and lower fuel costs were major drivers behind the record streak. Both are key factors behind the carrier’s earnings beat and guidance hike, and could kick-start another leg higher for the shares.
Write to Callum Keown at [email protected]
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