Delta tumbles 7% as earnings, guidance miss the mark; Stock tests the 200-day MA
2min read Delta Air Lines (DAL) reported Q2 earnings that largely fell short of market expectations, causing a significant premarket decline in its stock. The adjusted earnings per share (EPS) came in at $2.36, below the estimate of $2.38, and a noticeable drop from $2.68 the previous year. The adjusted revenue was $15.41 billion, slightly missing the $15.43 billion estimate, despite a 5.4% year-over-year increase. Passenger revenue, which stood at $13.84 billion, also failed to meet the $13.92 billion forecast. However, cargo revenue exceeded expectations, reaching $199 million, a 16% increase year-over-year against the anticipated $167.9 million.
Shares of DAL tumbled 7% in reaction to the news. The stock is testing support at the 200-day moving average ($42). This is the latest dagger for consumer discretionary as the economy continues to show signs of weakness in consumer spending.
For Q3, Delta’s guidance suggests adjusted revenue between $14.8 billion and $15.1 billion, falling short of the $15.32 billion estimate. Adjusted EPS is forecasted to range from $1.70 to $2.00, compared to the market expectation of $2.04. Despite maintaining its full-year EPS guidance of $6 to $7, in line with the $6.60 estimate, the outlook raised concerns among investors, leading to a 7% drop in Delta’s premarket stock price. This uncertainty also negatively impacted other major airlines, with United Airlines (UAL), American Airlines (AAL), and Southwest Airlines (LUV) experiencing premarket declines.
Delta’s operational performance for the June quarter was robust, with record revenues driven by high demand and efficient operations. The airline achieved a mid-teens operating margin and strong cash generation, leading to significant debt repayment. Delta also announced a 50% increase in its dividend payment, beginning in the September quarter. President Glen Hauenstein highlighted the strong demand for peak summer travel and the contribution of diverse revenue streams, including premium and loyalty services, which supported Delta’s industry-leading financial performance.
Premium revenue grew by 10% year-over-year, while loyalty revenue increased by 8%, primarily driven by higher co-brand spend and an expanding premium card mix. Cargo revenue showed significant improvement, growing by 16% year-over-year. Corporate travel demand also grew at double-digit levels for six consecutive months, with broad-based demand across various sectors. International passenger revenue was 4% higher than the previous year, with strong performance across the Transatlantic, Pacific, and Latin American markets.
Cost performance remained a focus, with Delta reporting operating expenses of $14.4 billion and adjusted operating expenses of $13.1 billion. Non-fuel unit costs were slightly higher by 0.6% year-over-year. Fuel expenses increased by 12%, with an adjusted fuel price of $2.64 per gallon. Despite these cost pressures, Delta's efficiency improved, with fuel efficiency seeing a 1.1% year-over-year enhancement. The company’s balance sheet showed progress toward investment-grade metrics, with a significant reduction in adjusted net debt.
Delta’s liquidity position remains strong, with $2.5 billion in adjusted operating cash flow and $1.3 billion in free cash flow for the June quarter. The airline prioritized debt reduction, paying down $2.1 billion in the first half of the year and ending the quarter with adjusted net debt of $19.2 billion. The company's strong cash flow enabled a 50% increase in its quarterly dividend, reflecting confidence in its ongoing financial health and future prospects.