Delta Air Lines is having a hot summer in the air and in the stock market. The airline’s bumper second-quarter earnings and lifted guidance suggest the good times will continue.
The carrier reported record second-quarter revenue and profits, and raised its earnings guidance for the full year amid strong demand and lower fuel costs.
The stock initially rose about 4% before the open, before dipping to trade around 0.5% lower in early trade.
Summer season travel demand has proven strong so far, and Delta said that continued into the third quarter. The Transportation Security Administration said the July 4th weekend broke records at airports across the US, while Friday, June 30th was the busiest day for air travel on record.
A strong start to the third quarter led Delta to forecast earnings 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 full-year EPS guidance to between $6 and $7, from the previous range of $5 to $6.
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Memorial Day weekend was also strong, and strong demand between the two holidays ensured that Delta posted bumper profits in the second quarter.
For the second quarter, Delta (stock ticker: DAL) reported adjusted earnings per share (EPS) of $2.68 on revenue of $14.6 billion. Analysts had expected a profit of $2.40 per share on revenue of $14.4 billion. Earnings also beat Delta’s guidance of between $2.25 and $2.50 per share.
The company said operating income of $2.5 billion was also a record.
“With this performance, we achieved record revenue and profitability for the June quarter,” CEO Ed Bastian said in a statement. “Consumer demand for air travel remains strong,” he added.
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Fuel costs were another major reason for Delta’s strong earnings. The company’s adjusted fuel expenses fell 24% from the year-ago period, to $2.5 billion in the second quarter. It added that revised fuel prices fell 34 percent to $2.52 a gallon.
With Delta being the first airline to report this earnings season, its strong results bode well for the rest of the sector. But Delta peers erased earlier gains on Thursday. American Airlines (AAL) fell 0.3%, United Airlines rose 0.7% but retreated from earlier daily highs, Southwest Airlines fell 1.1%, and JetBlue Airways fell 0.6%.
“Overall, the carrier’s results and evidence look very encouraging,” said City analysts led by Stephen Trent.
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“Citi continues to identify Buy-rated Delta as its preferred US carrier,” they added, noting that the company’s valuation has yet to recover to pre-pandemic levels. They have a price target of $65 per share, which would mean an upside of 35% 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% during the period. In mid-June, Delta also reinstated its dividend for the first time since it suspended payments in March 2020, adding to the stock’s appeal.
Shares have continued to rally since the streak was cut, and are up 48% so far in 2023, as of Wednesday’s close.
Strong travel demand, especially among Americans looking to travel abroad, and low fuel costs were major factors behind the record-breaking streak. Both are major drivers of the carrier’s earnings win and guidance rally, and could kick-start another move higher for the stock.
Write to Callum Keown at [email protected]
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